US Dollar Attempting to Stabilize Against Canadian Pressure on Monday
The US dollar has stabilized a bit against the Canadian dollar which I think speaks volumes at this point. Despite the rhetoric, we are still essentially where we have always been.
USDCAD
There were a lot of people excited after the Davos meetings about how it was the sell everything American trade. The one thing that they forgot on the way is that most international debts are in fact paid with US dollars so any significant decline in the US dollar typically isn’t immediate.
The Canadian dollar of course is backed by nothing really. There is no gold that the Bank of Canada owns which is really too bad for the Canadians because they would be in a very strong position had they chosen not to empty out the vault.
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The Canadian dollar is quite often backed by crude oil but that’s not as big of a deal against the US dollar as the Americans are the ones who actually end up refining that crude oil. In other words, Canadian crude has to come south because it cannot be refined up there.
Market Decoupling and Key Levels
This is why the US dollar against the Canadian dollar is starting to decouple a bit from the crude oil trade and I expect that to be the way going forward. After all of this noise we are essentially in an area that historically is average for this cross pair.
I know that’s hard to believe with all of the drama on social media at the moment but really at the end of the day not much has changed. I still see the 1.3550 level as an absolute floor in this market, and we are about 150 pips above there.
But if we could recapture the 1.3750 level I don’t see why we won’t go looking to the 200-day EMA just below the 1.39 level especially if the US dollar strengthens again.
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