The US dollar has fallen hard during the trading session on Friday to reach the 1.29 area against the Loonie. The Canadian dollar has a strong correlation to the oil market, which of course was very strong during the session. The question now is whether or not the previous resistance will offer support near the C$1.29 level, or if we continue to fall and breakthrough that area to enter the previous consolidation area? Ultimately, the market should have a little bit of a reaction to that area based on the gap that we have jumped above.
The size of the candlestick is rather bearish, but it is also worth noting that we have seen a lot of support there over the last week, so it will be interesting to see if we can bounce from here. A lot of this will come down to whether or not oil truly takes off, and if the US dollar gets a bit of a pullback in general as it has been extraordinarily strong against multiple currencies, not just the Canadian dollar if the US dollar takes a bit of a breather, that might be reason enough to have this market pullback.
However, if we were to turn around and bounce from here, the market could go looking to take out the C$1.30 level next. If we rally above there, then it is likely that we could go looking to reach the C$1.31 level. A lot of this could be influenced by oil, but it also could be influenced by fear, as the US dollar continues to be the first place people run to when they are concerned. That being said, it is worth noting that this pair does tend to be very choppy as the two economies do so much in the way of cross-border transactions. You can think of this a lot like the EUR/GBP pair, as there is a lot of noise between both of those currencies as well.
If we were to break down below the C$1.29 level, we will more likely than not see a bit of support come into the picture not only at the gap, but also at the 50 Day EMA which is rising at this point and looking to be influential yet again as we have seen it be so many times in the past.