The US dollar chop around against the Canadian dollar during the session on Tuesday, as we are testing the previous uptrend line from the weekly chart. We are underneath it, so I think that there should be sellers in this market, and ultimately, I think that the Federal Reserve statement is going to have a lot to do with where this pair goes next. If the Americans are unlikely to raise interest rates, the US dollar should fall against the Canadian dollar, especially considering the following greenback could send oil markets higher as well. Ultimately, this is a market that I think should continue to be choppy in the short run, but I think eventually we will get the breakdown in the continuation.
The alternate case
If we were to rally above the 1.24 handle, I think at that point you could start to see this market take off to the upside. This is because it would wipe out the selling off the US dollar after the surprise Canadian rate high, and that would be a very bullish sign. I don’t suspect that’s going to happen though, especially if the Federal Reserve looks hesitant to raise rates. Longer-term, that could send this market down to the 1.20 level, so I think that the Canadian dollar is being slightly undervalued now. We have had a few mixed signals from the Canadian economy, but this is an area that should continue to be important. Once we get those words from the Federal Reserve, we should have a bit of clarity in this market and perhaps a nice longer-term trade. I’m paying attention to those levels, and trading accordingly. In the meantime, this is a market that’s probably best monitored, and not necessarily traded yet.
Written by FX Empire