During Monday’s session, we have seen the US dollar pierced the $1.38 level against the Canadian dollar. At this point, the pair is getting a bit stretch, but let’s be honest here: the US dollar is “overstretched” against most currencies. This does not change my general attitude on the greenback, it just tells me that it might be time to take a short-term break.

Federal Reserve

The Federal Reserve will continue to be front and center when it comes to the US dollar, as they continue to tighten monetary policy. In fact, the Fed has just started to run off its balance sheet, which should continue to provide support for the US dollar anyway. Beyond that, there are a multitude of other reasons to think that the Federal Reserve is going to stay tight, not the least of which would be the blistering inflation that America continues to deal with.

Technical analysis

It’s worth noting that the US dollar piercing the $1.38 level is important, as it is a major area of resistance from years ago. I do think that we eventually get above there, but the short-term pullback could offer a nice buying opportunity. $1.35 would be an area that I think buyers would be waiting for, and then of course you have the 50-Day EMA, which is all the way down to the $1.31 level. I do not think we get anywhere near there, but that would be my short-term “floor in the market” if I was forced to come up with one.

I will be buying pullbacks, because the Canadian dollar is so highly levered to the commodity market, and if there is a global slowdown the commodity markets will continue to fall. All one has to do is look at the oil market to see how that’s been playing out. Furthermore, you have the Canadian housing market finally coming back down to reality, something I’ve been waiting for years to see. Any of my friends in Toronto can tell you just how ridiculous the prices have been.

Ultimately, I am a buyer of dips and looking for value in this pair, as I have no interest in trying to pick up the Canadian dollar at the moment. However, someday the Federal Reserve will pivot, and when it does this could be a nice selling opportunity. However, don’t hold your breath for that to happen anytime soon.