- USD/CAD is rebounding from the key 1.40 level, maintaining its broader uptrend amid U.S. economic strength and a favorable rate differential.
- Buyers remain in control unless price breaks below the 50-day EMA, with 1.4250 still a logical target.
The US dollar has rallied a bit during the early hours here on Monday as we are bouncing from the crucial 1.40 level against the Canadian dollar. I have no interest whatsoever in trying to get too cute here. This is a market that's been in an uptrend for some time, and, interestingly, the 1.40 level has in fact offered enough support to keep the market afloat.
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A Grind, Not Explosion
That being said, this is not exactly an explosion to the upside. I think this is a situation where we are just grinding higher due to the interest rate differential and the fact that the Canadian economy, although doing okay, really pales in comparison to the U.S. economy. So that does add more upward momentum. The interest rate differential, like I said, does favor the U.S. dollar. So, it makes a certain amount of sense to hold this pair. And really, if we were to break down from here, it's not until we slice below the 50-day EMA that we could start to think that maybe the trend is struggling.
But overall, I still look at this as a market that is ready to go to the 1.4250 level, an area that previously had been significant support and should end up being not only a target, but I think an area that, if we can break above, it would really be a signal that the Canadian dollar is in trouble.
The US dollar has been strengthening all day against most currencies, so it won't be any different here. And with that being the case, I think you still have a situation where you are a buyer of dips and looking to grind your way higher and collect that swap at the end of every session to build your profit.
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