The 1.3750 level has been broken by the US dollar on Wednesday, as traders continue to pay close attention to the interest rate markets at the moment. Ultimately, we are now looking at the 200 Day EMA for the next clue.
US Dollar/Canadian Dollar
As you can see, the US dollar has rallied quite significantly during the trading session on Wednesday as we continue to see a lot of noise out there. All things being equal, I think this is a situation where traders are looking at the 200-day EMA and that of course is a major indicator that a lot of people will be watching.
Keep in mind that oil of course is a major factor, but there is also the reality that at least in this respect, oil doesn’t have as much of an argument to play in this scenario. The 1.3750 level has been broken to the upside, and it does look like the US dollar is going to continue to strengthen. We have an interest rate differential that favors the American dollar and of course we have rates in America much higher than usual.
Interest Rate Differentials Favor the US Dollar
Canadian rates are a little lower. There are less economic prospects in Canada at the moment for growth, while inflation in America continues to be strong and growth in the economy itself is fairly stable. In this environment, not to mention the fact that we have geopolitical concerns in the Middle East, it makes perfect sense that we eventually break out to the upside.
I have been covering this a lot lately and I have mentioned the 1.3750 level multiple times. We are now at a much more important phase testing the 200-day EMA. If we can break from here, the 1.39 level I believe ends up being your next target. If we break down from here, as long as we stay above the 1.37 level, I remain bullish and I think it remains a buy on the dip scenario.