The US dollar has rallied significantly during the trading session on Thursday to continue the recovery against the Canadian dollar. The 1.25 level has offered significant support multiple times, and it looks as if we are rallying away from that level. The 50 Day EMA above is offering a bit of dynamic resistance, and it has broken down below the 200 Day EMA. That being said, this is a range-bound market so, therefore, moving averages do not mean too much.
Looking at this chart, the market continues to see a lot of noisy behavior, as is clearly defined by the floor at the 1.25 level, and the ceiling at the 1.2850 level. Ultimately, this is a market that I think continues to go back and forth over the longer term, and perhaps on the whims of the crude oil market. Remember that the Canadian dollar is highly levered to the crude oil market, which is in the process of breaking down. If that continues, then I anticipate that the US dollar will rally from here and eventually make its way to the top of the rectangle that I have marked on the chart.
On the downside, if we do pull back from here, I think there is plenty of support at the 1.25 level to keep the market afloat. In fact, we have already tried to break the market down below there more than once, both times ending up in significant hammers. As long as that is going to be the case, it looks as if there are a lot of defenders in that general vicinity, and therefore a breach of the hammer from the Tuesday session would be a very negative turn of events, wiping out the 1.24 handle, an opening up a move down to the 1.22 level.
Keep in mind that this pair does tend to be very choppy in general, as the United States and Canada do so much cross-border business. Ultimately, this is a market that I think continues to see a lot of back and forth, but it does look like we are trying to find some type of reconciliation to the upside. I do not necessarily see that this market could break out above, but that could be an argument to be made on longer-term charts. In the short term, it is going to be very choppy with an upward tilt.