The US dollar has been very choppy on Monday, as rates continue to dance around important levels in the USA.
USD/CAD
The US dollar has been very choppy during the early hours on Monday against the Canadian dollar, but I would also point out quite frankly I think we're stretched. Between here and 1.40 is a significant area of resistance and of course the 1.40 level would be thought of as psychologically important. So, a little bit of stagnation here does make a certain amount of sense to me.
If we can break 1.40 then we will probably make a move to the 1.41 level. To the downside, if the market were to break down below the 1.3850 level, then we are testing the 200-day EMA.
Interest Rate Differentials and Inflation
Ultimately, I think one of the biggest misnomers that traders can make right now is that perhaps this has something to do with oil. And the reality of course is it really doesn't have that much to do with oil. Although it does firm up the Canadian dollar, the United States produces more than enough crude oil to balance that out in this occasion and in this currency pair.
This is mainly about the interest rate differential and the interest rates in America climbing as the 4.30% level in the 10-year continues to be important. We are above there so that does provide a little bit of a boost for the US dollar, but we have been more or less just hanging around that general vicinity and you're seeing it play out in the forex markets.
If we do get a pullback, I suspect it will be a buying opportunity before it's all said and done because the Federal Reserve also is going to be hard pressed to be cutting rates in this environment. Not only through the war but just the fact that inflation was sticky to begin with. So, I'm probably more bullish than bearish but would like to find cheap US dollars to start buying again.