The US dollar pulled back a bit during the trading session on Friday but found enough support near the 1.2550 level to form wet looks like a short-term base. However, I think that the market breaking down is a sign that we are probably going to continue to go a little lower, as there is a daily uptrend line that we have not tested yet and of course there is the 1.25 level which should be important as well. I like the idea of selling rallies when the markets show signs of weakness, and of course when oil rallies as it tends to favor the Canadian dollar overall.
If the Canadian dollar breaks below the 1.25 level, that could unwind this pair down to 1.22 over the next several weeks, but currently it looks as if we are getting close to a major decision level, so I would be cautious about putting long-term trades on quite yet. I also recognize that oil markets might be getting a little ahead of themselves, so it will be interesting to see how this all correlates. If we do rally from here and break above the 1.2650 level, it’s likely that the market may go looking towards the 1.2750 level after that. I anticipate volatility, but I also recognize that we will need to make some type of serious decision relatively soon. This could be one of the more dangerous currency pairs to trade over the next several sessions.