The only thing I think you can count on at this point is choppy volatility, but that is the norm of the market anyway.
The US dollar fell a bit on Friday to reach down towards the 50-day EMA against the Loonie. This is a very choppy market to say the least, so it is not a huge surprise that we find ourselves jumping back into the previous consolidation range. At this point, the market is more likely than not going to focus on value, and that value will probably be found in the US dollar.
The overall attitude of the market has been one of a “buy the dips” variety, and at this point, the 50-day EMA will probably entice a certain amount of traders into the market to go long, and this will be especially true if the crude oil market continues to correct. Remember, the crude oil market had gotten far ahead of itself, so it does make sense that we would see continued profit-taking.
Underneath, I see the 1.26 region as potential support as well, so I certainly think that we are closer to the bottom than we are to the top of the overall trading range. I like the idea of buying dips because this is a play on safety more than anything else. Keep in mind that there are a lot of global concerns right now, so although commodities have done quite well, the reality is that there will be demand for US dollars and US Treasuries.
If we do break down below the 1.26 handle, then the US dollar will probably fall not only against the Canadian dollar but most other currencies as well. At that point, it is very likely that the USD/CAD pair will go looking to the 1.25 handle for the next target.
On the other side, if we break above the 1.28 handle, the market is likely to go looking towards the 1.30 handle, which is an area where we have seen a lot of resistance previously. At that point, we could very well pull back again, but if we were to clear that area, the pair could really take off to the upside. The only thing I think you can count on at this point is choppy volatility, but that is the norm of the market anyway. In general, this is a market that I think will continue to be very noisy to say the least.