The United States dollar initially fell against the Canadian dollar on Tuesday but has turned around as we are seeing the crude oil markets drop.
After all, the crude oil markets dropping is based on the idea that more oil is getting through the Strait of Hormuz and the general vicinity than anticipated.
If that ends up being the case, that will provide a little bit of relief for the crude oil market and therefore hurt the Canadian dollar. The interest rate differential does favor the United States, but really at the end of the day, what I'm watching closely here is that the market will be watching the 1.40 level as a massive barrier. If we break above, it could be a huge sign of United States dollar strength and possibly Canadian dollar weakness, but we'll just have to see how the United States dollar fares against other currencies.
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As things stand right now though, I'm looking forward to seeing if there's any signs of exhaustion to start shorting the USD/CAD pair, because quite frankly, we did have that signal earlier in the day, and I think that could return.
This is a very dangerous place, but I'm watching the 1.40 level because it should give us a bit of a heads up as to where this pair goes going forward. If we can break out to the upside, the 1.41 level is the next target followed by the 1.43 level.
If we turn around and fall from here, we could see a situation where the United States dollar falls against most currencies and possibly down to the 1.3850 level here. We are at the top of a range that goes back the entire year, so we'll have to see how this behaves. This is a time to pay close attention, not to try to front run.
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