Volatility is probably something you are going to be dealing with.
The US dollar got hammered against the Canadian dollar on Friday as both countries released their jobs numbers. The US jobs numbers came in at half of what was expected, adding 199,000 jobs for the month of December. In Ottawa, it was announced that the Canadians added 54,700 jobs, much better than the anticipated 24,500 for the month of December. By doing so, this shows that the dichotomy between Canada and the United States, at least as far as employment is concerned, continues to separate quite drastically.
By the end of the day, we ended up finding the market closing at the very lows and sitting just above the 200 day EMA. If we were to turn around and break down below the 200 day EMA, then it is likely that we could go much lower, perhaps reaching towards the 1.25 handle underneath. When you close at the very bottom of a range like this, typically there is a little bit of follow-through. While we do have a huge divergence in the employment situations in these two countries, you need to be very cautious about the interest rate differential. After all, the Federal Reserve is looking to raise interest rates at least three times this year, so this has people buying the US dollar against most currencies.
The one thing externally that could offer quite a bit of support is the fact that the Canadian dollar is so highly correlated to the crude oil markets, which have been very strong. It should be noted that crude oil did drop during the day while the Canadian dollar strengthened, but over the longer term it makes quite a bit of sense that we should see a lot of return to correlated moves. If we break down below the 200 day EMA, I think it will pick up quite a bit of momentum to the downside. Otherwise, it is possible that we will bounce, but I think there is a little bit of a “ceiling” near the 1.28 level above. Ultimately, I still believe that the 200 day EMA is going to be crucial, so if we do break down below there it is likely that we could just completely fall apart. Either way, volatility is probably something you are going to be dealing with.
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