The US dollar has dipped ever so slightly during the trading session on Wednesday as we continue to hover around the 1.25 level against the Canadian dollar. This is an area that has been supportive multiple times, so one would assume that there is at least a fair chance that we bounce from here. The market bouncing from here could send the US dollar towards the 1.28 level, an area that previously had been supported. Furthermore, the 200-day EMA is just above there, so it could come into play as well.
The inverted hammer from the Tuesday session was somewhat negative looking, so a break above the 1.26 level could not only be bullish due to the area of support but the fact that it had worked the previous session. The market breaking above there would take a lot of effort and momentum, but it is certainly not impossible. When you look at the longer-term chart, you can see that the 1.25 level has been rather supportive and reliable, just as the 128 level above has been significant resistance. This sets up a 300 point range for the longer term that traders will continue to pay attention to, meaning that if we were to break out of it, things could get rather interesting.
On that note, if we were to break down below the 1.25 handle, then it opens up a move down to the 1.23 handle rather quickly. This would be a very “risk-on” type of move and probably influenced by crude oil itself. If crude oil starts to rally rather significantly, it is likely that the Canadian dollar will strengthen quite drastically. However, if oil starts to sell off, that might be reason enough for the pair to turn around.
Keep in mind that the market does tend to be very choppy, so I would not be looking for huge moves at any one time. The significant noise that we see on a day-to-day basis is something to keep in the back of your mind, and you need to realize that it is going to take quite a bit of patience to trade this pair, as it does tend to take its time in most of its big moves. Because of this, it tends to be more of a swing trade than anything else.