This is a market that will continue to be very choppy and frustrating for most people.
The US dollar plunged on Friday to break below the 200-day EMA against the Canadian dollar. Perhaps more importantly, it is also testing the 1.26 level, an area that has been important more than once against the Loonie. Because of this, I will be paying close attention to today’s trading session, because it could open up a move down to the 1.25 handle.
On the other hand, if we turn around and recapture the highs from the Thursday session, then I think we will go looking towards the 1.28 handle. Keep in mind that the Canadian dollar is a proxy for the crude oil market, and the crude oil market certainly looks as if it is trying to recover in general. If that is going to be the case, then there may be more demand for the Canadian dollar going forward. Furthermore, it is noteworthy that the US dollar itself has been losing strength, even though the Federal Reserve was very hawkish at this last meeting. Perhaps it is due to certainty finally coming back into the market, which does tend to help risk appetite, despite the fact that there is really nothing good coming down the pipeline at the moment.
The size of the candlestick is not necessarily impressive, and it should be noted that it is somewhat neutral, so I think at this point you have to look at it through the prism of whether or not we will break higher based upon support, or if that support finally gets crushed. It is very difficult to trade any market at this point, because everything is losing its typical correlation. Furthermore, there is always the possibility of a headline coming out of Ukraine that could have ramifications as well, so I am not willing to get aggressive with anything at the moment. I suspect that using caution will probably be the most important thing that you can do going forward, not only in this market but pretty much anything else.
If we do break down to reach the 1.25 area, breaking down below there could open up the floodgates for a move lower. Ultimately, this is a market that will continue to be very choppy and frustrating for most people.