USD/CAD Forecast: Dollar Tests 200-Day EMA As Buyers Target 1.39

• The US dollar has rallied quite nicely during the trading session here on Thursday as we continue to see a lot of upward movements in this market.

• That being said, I think you also have to understand that the interest rate differential continues to be a major factor.

• I think the US dollar being able to break above the 200-day EMA is a good sign, and I think that we could eventually go looking to the 1.39 level.

Interest rate differential continues to favor the United States and the rates in America continue to climb, so it all ties in quite nicely. With that being said, I believe this is a market that continues to see buyers on dips.

Economic Concerns and Geopolitical Dynamics

I just see a lot of issues in Canada with the economy, especially as there are still questions about tariffs, things like that. While that hasn't really taken hold recently as far as the overall imagination of traders, the reality is it is still something that's out there that people worry about. Because of this, I think you have a situation where probably more likely than not, while people are siding with the US dollar, especially considering that the situation in the Middle East could cause major supply chain issues.

And in that environment, people tend to run into bonds. You get a guaranteed return instead of risking in some type of riskier non-yielding asset. That's essentially what's going on here. The interest rate differential between the US Dollar and the Canadian Dollar isn't massive, but it does exist. And as a result, we see a gentle grind higher. I think that continues. I believe the 1.37 level underneath should offer support.