The US dollar fell during a surge lower on Tuesday, reaching toward the vital 1.3250 level. However, by the time the Americans got to work and started to take the markets under their control, the pair has turned around of form a significant hammer shaped candle. Beyond that, we also have the 50-day EMA slicing through the candlestick, so that is of course bullish as well.
We had recently sliced through a triangle, and that triangle has now offered support yet again. This is a very bullish development and I believe has caught the attention of most of the trading public. Beyond that downtrend line that made the top of the triangle, we also have the 61.8% Fibonacci retracement level that has held quite firmly also.
While crude oil typically will do good things for the Canadian dollar, let us not forget that the relationship between crude oil and the Canadian dollar, at least against the US dollar, is starting to deteriorate slightly. After all, the world’s largest producer of crude oil is now the United States, so it’s very likely that the dynamics of the two markets are starting to shift. That being the case, even if crude oil rallies, that doesn’t necessarily mean that this pair will fall.
I have just entered a long position into this pair, and a break above the 1.3350 level would confirm more bullish pressure that could open the door to the 1.35 handle. On the other side of the situation, you could see a break down below the 1.3250 level which could open up the markets for a move down to the uptrend line of the previous triangle, and then of course the 100% Fibonacci retracement which would be 1.3125. All things being equal though, the US dollar is going to be very noisy as the Federal Reserve is meeting this week. Keep that in mind.
