Monday saw the US dollar gap lower against the Canadian dollar at the open as it looks like the Americans and the Iranians are getting fairly close to signing a deal, but we've been here before, so we have to be very cautious.
Ultimately, you should also keep in mind that the markets are having to focus on the fact that the day was a holiday in the United States and beyond, so liquidity would have been a major issue.
A lot of the major players simply weren't in the market.
The fact that we gave back the initial gains suggests that people are still looking to sell the US dollar in the short term, but I see a lot of support underneath current trading, especially near the 1.3725 level where the 50-day EMA sits. If we can break above the 1.3830 level, then I think we will continue to grind to the upside.
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Interest Rate Differential Still Favors the US Dollar
The interest rate differential still favors the US dollar against the Canadian Dollar, although it's not a massive gap anymore, but it's enough to at least have some influence. If oil starts to fall, that could eventually weigh upon the Canadian dollar, but I think the real story is going to be whether or not we get some type of relief coming out of the Middle East.
If we do not, then that would obviously be an issue, and more likely than not, the US dollar would be a winner. If we get more of a risk appetite-based trade coming around, then I think you've got a situation where traders are looking to perhaps get involved in the Canadian dollar.
It'll be interesting to see how this plays out. We have a lot going on at the same time, and I think the one thing that you could probably come away from this with is the idea that perhaps we have a certain amount of uncertainty and therefore volatility.
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