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The C$1.27 level underneath could be a potential target for the short term.
The US dollar has rallied initially during the trading session on Thursday to reach the 1.29 area. This area was the top of a previous consolidation area that we have been stuck and for a while. Because of this, it is not a huge surprise to see that we pulled back a bit, especially as the Canadian dollar correlates with the crude oil market that is relatively strong. Speaking of crude oil, crude oil had a very good day after initially selling off, showing an almost mirror image to this chart.
At this point, a lot is going to be made about whether or not the US dollar can continue to strengthen. It is overbought in general, and the Canadian dollar does tend to fare relatively well against the greenback unless something is going on in the crude oil market that makes it particularly toxic. The idea that there is still a serious supply issue when it comes to crude oil is certainly something that is going to help the Canadian dollar in general. That being said, I do not necessarily think that we are suddenly going to see Loonie strength, rather we may just see a short-term pullback into the same region that we have been in.
The 50 Day EMA is near the 1.2635 level and is rising. It has just crossed above the 200 Day EMA as well, but I would not pay too much attention to the so-called “golden cross” because the moving averages are relatively flat. The candlestick for the day looks as if it is going to end up forming a shooting star, which gives you yet another reason to think that perhaps the resistance could hold. That being said, if we were to break above the 1.29 level, the market will likely go looking to test the 1.30 level above, an area that also has a certain amount of resistance built into it, not only from a structural standpoint but from a psychological standpoint as well.
As things stand right now, it looks as if we are going to stay within the overall consolidation area, perhaps giving a little bit of a reprieve to the Canadian dollar in the short term. The C$1.27 level underneath could be a potential target for the short term.
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