I would anticipate an impulsive move sooner or later, but with the Friday close, it looks like the likelihood of going higher is much stronger now.
The US dollar rallied significantly on Friday to reach towards the 1.2560 area. Just above here, we have seen a lot of resistance over the last couple of weeks, just as we had seen a lot of support near the 1.2450 level. Essentially, we have gone back and forth over the last couple of weeks, but this candlestick is a little bit different than the others, because we have seen shooting stars and hammers. In other words, we have seen a lot of confusion and sideways action.
That being said, the Friday candlestick is closing at the absolute highs, and it is likely that if we can break above the shooting star from the Tuesday session, then the market is likely to continue climbing higher. Keep in mind that the Canadian dollar is highly sensitive to the crude oil market, but it does not need to move in the same direction. After all, there are bigger issues out there beyond the fact that oil prices are rising. We have a lot of inflationary pressures and concerns, but at the same time we also have a lot of money flying into the US treasury markets, meaning that they are demanding dollars.
If the need for US dollars continues to increase due to risk aversion, that will certainly work against the value of the Canadian dollar, as it is a commodity currency. Yes, I understand that the biggest gainer in the commodity space right now is crude oil, but it seems as if we are not focusing on that. Furthermore, the Canadian economy seems to be struggling and the Canadians cannot stop locking themselves down, so that could work against the value of the Loonie in general.
If we do break out of this rectangle, then I think we will challenge the 200 day EMA almost immediately, which is sitting at the 1.2615 handle. If we can break above there, then the market is likely to go looking towards the 1.2750 handle. To the downside, if we were to break down below the 1.2450 level, it is likely that the market will go looking towards the 1.24 handle, followed by the 1.23 level. I would anticipate an impulsive move sooner or later, but with the Friday close, it looks like the likelihood of going higher is much stronger now.
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