The US dollar rallied quite a bit on Friday against the Loonie, as the markets are trying to price in risk destruction.
USD/CAD
The US dollar rallied pretty significantly against the Canadian dollar during the trading session on Friday, slamming into a significant resistance range. The market sees a lot of resistance starting at the 1.37 level as well as the 1.3750 level, so there is a whole zone of overhang here.
A lot of this is going to come down to things that we cannot really get together and make a consensus bet on because its headlines coming out of the weekend. Those headlines can be anything. Obviously, it's going to be related to the Middle East, we just don't know what those headlines are.
Market Sentiment and the Federal Reserve
Because of this, I fully anticipate that on Monday when we begin trading again, it's going to be a different world in this pair, maybe. Maybe we don't get a lot of really bad headlines, and the market drops a little bit based on maybe some slight US dollar selling. There are concerns though that the inflationary headwinds in the United States continue and therefore keep the Federal Reserve looking to perhaps stay a little bit more hawkish than people anticipated.
If that's the case, then we go higher as well. So, I would say I favor the upside, but the last thing I want to do is buy this pair heading directly into resistance and a weekend that pretty much anything can happen. So, in this environment, I have learned over the last 22 years or so, you're better off just sitting on the sidelines because we are at such an important level.
I do recognize there's a high potential of this pair selling off and nothing major happens, but even that I don't think changes much; it would just have us remaining in consolidation. Be very careful with this pair; we could be looking at a significant gap early Monday morning when the markets open up in Asia.