US Dollar Dominates Northern Neighbor

At this point, it is very likely that we will see a lot of chop, but that is about it.

The US dollar has rallied again on Tuesday as we have tested the 1.28 level against the Loonie. Keep in mind that the market has seen a lot of upward momentum, so the fact that we pulled back rather early in the session should not be a huge surprise. The top of the overall range is at the 1.29 level, which should be a huge barrier to overcome. If we can break above there, then the US dollar will almost certainly test the C$1.30.


That being said, we have been in a consolidation area for a while, so it should not be a huge surprise to think that we will stay in it. The 50-day EMA is trying to turn around and break above the 200-day EMA, and kick off what is known as the “golden cross.” This is a bullish sign but tends to be a bit late. This is especially true when you are trading somewhat sideways in general, when you look at it from the longer-term perspective.

If we break down below the 50-day EMA, then it is likely that the US dollar will drop to C$1.25, but obviously, it would take quite a bit of momentum shift in order to make that happen. The market will continue to be very noisy, but that is nothing new to the USD/CAD pair as the two economies do so much trading with each other. You should also pay close attention to the crude oil markets because the Canadian dollar is quite often used as a proxy for the crude oil market.

At this point, it is very likely that we will see a lot of chop, but that is about it. If we do break out to the upside, a move above the C$1.30 level could open up a huge move higher. I do anticipate that there will be plenty of support for the US dollar on any type of pullback, mainly because there is so much fear out there when it comes to the economic situation. In the current environment, is very difficult to imagine a scenario where we see the greenback give up a lot of real estate, so given enough time I think it will probably continue to be bullish over the longer term.


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