The US dollar has fallen significantly during the trading session on Tuesday after initially trying to break above the 1.26 level. This is an extraordinarily negative move, and at this point, we are threatening a major trend line. The trend line is two years old, and the something that a lot of people will be paying attention to. Ultimately, I think this is a market that will find plenty of volatility based on where we are at.
If we were to break down below the uptrend line, then it opens up the possibility of a move down to the 1.24 handle. In that scenario, we probably go much further to the downside, perhaps driven by the value of oil more than anything else. While the US dollar is relatively strong against most currencies, it is worth noting that the Canadian dollar has been an outlier. At this point, I think the market is going to have to make a bigger decision, because of the breakdown through this uptrend line it could be a sign that the Canadian dollar is going to take off.
Alternately, if we turn around and bounce it could show continued determination to drive the Canadian dollar higher, right along with oil. It’ll be interesting to see all this plays out because there is a significant cluster right here as well when you look to the left. Given enough time, we more than likely will have to make some type of bigger move, and we should get in impulsive candlestick rather quickly. This has been a brutal selloff, and it looks like there’s no real end in sight unless this trendline holds. If it does not, it becomes more of a “sell and hold” type of situation.
If we turn around and break above the highs of the trading session on Tuesday, that could send this pair back to the upside, but I do not think that is likely to happen easily, at least not without some type of action coming out of the Federal Reserve, or perhaps the inflation numbers coming out on Friday in America. Oil spiking would of course have the exact opposite effect, but if it does sell off, that could set this pair higher. We are at a major decision point, so wait for the market to tell you where it’s going to go and then follow it.