A Clear Range May Not Last Long For EURCAD

Over the past month, EURCAD has experienced incredible volatility. However, even the dramatic, trend-breaking rally from the first half of this month couldn’t overwhelm the very visible, nine-month mature trendline currently hovering above the market.

Why Would EURCAD Stay in a Range?

 

·         Levels to Watch:

-Range Top:       1.6120 (Trend, Swing High)

-Range Bottom: 1.5800 (Range Low, Pivot)

 

·         We have been watching EURCAD for some time now the initial rally in this pair a few weeks ago was just starting to yield to resistance. Now we see that with the drop in volatility (read through risk concerns) has come hand in hand with the pair’s consolidation just below the aforementioned ceiling. Fundamentally, risk sentiment fading, growth and interest rate concerns will once more emerge. With both banks easing, this seems an even match.

 

·         Over the past week, EURCAD has stabilized into a trading zone below a long-term trendline (now around 1.6120) and above a notable pivot level at 1.5800. Resistance is very clear, which makes it that much more effect as a technical level. Looking back, the 1.58 level figure has stepped in as a barrier, but it is prone to breakouts.

Suggested Strategy

 

·         Short: Though it is somewhat aggressive, we will set short orders at 1.6090.  

·         Stop: Our initial stop will be 1.6170, which will just cover the swing high from October 10th, but tails are usually modest for this pair. When the first target is hit, we will trail our stop.

·         Target: First objective equal risk (80) at 1.6010. The second target is aggressive at 1.5930.

 

Trading Tip – Over the past month, EURCAD has experienced incredible volatility. However, even the dramatic, trend-breaking rally from the first half of this month couldn’t overwhelm the very visible, nine-month mature trendline currently hovering above the market. This alone is testament to the strength of resistance; but not necessarily of a range. After such aggressive rallies in either direction, relief retracements are common. And, while 1.58 has been a notable technical level for the past six months, it often falls to pressure. For this reason, we will not look for a long trade near the bottom of the range; rather we will keep our probability of a successful trade high by shorting near the top of the range. As a fail safe, we will cancel all open orders should the pair drop below 1.58 or should we not be entered in a position by Friday.

Event Risk Euro Zone And Canada

Euro Zone – While there is significant event risk behind the euro’s economic docket, the hierarchy for fundamental drivers remains: financial crisis, interest rates, growth. As such, any concern that the credit market is freezing, will trump a reading on manufacturing or consumer activity. However, we can only prepare for event risk that can be reasonable estimated. From the docket, the major event risk doesn’t come in until later this week and into next week. Friday will bring the advanced readings for economic activity through the current month.  The German manufacturing and service – and Euro Zone composite – PMI readings are treated as leading indicators for economic activity across the basic sectors. And, as the first reading of the year’s final quarter, it will set the scene for year-end growth forecasts. After the weekend, traders will then move on to confidence figures. The IFO business sentiment report will almost certainly reflect the drop in equity values and the credit market crunch; but the outlook for consumers in the GfK reading will be an unknown.

Canada – Of all the economic dockets this week, Canada’s happens to be the most active. Tomorrow, the Leading Indicators and retail sales reports will cross the wires. The former isn’t often market moving, but it will offer assistance to growth forecasts.  The consumption indicator, however, is among the top market movers. It is certainly a lagging report (recording data from August), so any improvement will be downplayed as it will have come before the influence of the recent credit market turmoil. Later this week, interest rates will come back into view with the BoC’s report perhaps shedding more light on their plans for monetary policy going forward after suggesting they would cut further today. For the same reason, a drop in CPI Friday could ease the path to further cuts.

Data for October 22 – October 29

 

Data for October 22 – October 29

Date

European Economic Data

 

Date

Canadian Economic Data

Oct 23

EZ Industrial New Orders (AUG)

 

Oct 22

Leading Indicators (SEP)

Oct 24

German PMI Services (OCT A)

 

Oct 22

Retail Sales (AUG)

Oct 24

EZ PMI Composite (OCT A)

 

Oct 23

BoC Monetary Policy Report

Oct 27

IFO Business Confidence (OCT)

 

Oct 24

Consumer Price Index (SEP)

Oct 28

GfK Consumer Confidence (NOV)

 

 

 

 

Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? You can send them to John at jkicklighter@dailyfx.com.