Momentum to close the week was extraordinary; and looking for any range opportunities for the coming week will have to account for potential follow through on these trends. Nowhere is this more true than with EURCAD. Already in an aggressive decline for the past two weeks, Friday’s plunge marked the biggest single-day decline since July 23rd. While this could be the last step before trend exhaustion, it could just as easily be a healthy stage in a larger trend.
| How stable is the EURCAD Range? • Levels to Watch: -Range Top: 1.2225 (Fib, Double Top) -Range Bottom: 1.1950 (Channel, Fib) • There is a substantial sentiment draft coming off of the Canadian dollar; but does the currency deserve the same correlation that its Australian and New Zealand counterparts enjoy? The current yield on Canadian asset is certainly much lower and the outlook for rate hikes is far more staid than the already hawkish RBA. Aside from Friday’s job data, the positive measures are in short supply. Going forward, we could see the CAD’s relationship break. • From a technical standpoint, the short-term trend and momentum are clear. Since the September 28th reversal, this pair has covered over 700 points. Eventually, this trend will become exhausted; but betting against such a drive is risky. Support is developed in a long-term trend (from February 2008) and is further supported by a long-term 50% Fib. Suggested Strategy • Long: After confirmation of a stalled trend and potential turn, entry will be set to 1.5345. • Stop: A stop of 1.5275 will not cover the July reversal; but it should hold for the Trend. To secure profit, move the stop on the second lot to breakeven when the first target hits. • Target: The first objective is 1.5 times risk (105) at 1.5450. The second is 1.5555. |
Trading Tip – Momentum to close the week was extraordinary; and looking for any range opportunities for the coming week will have to account for potential follow through on these trends. Nowhere is this more true than with EURCAD. Already in an aggressive decline for the past two weeks, Friday’s plunge marked the biggest single-day decline since July 23rd. While this could be the last step before trend exhaustion, it could just as easily be a healthy stage in a larger trend. Therefore, while we are looking at notable support below the week’s low, it will be essential to confirm that the market is stalling and could eventually reverse. We will look for the long-term trendline (that connects lows from Feb, Oct, Nov 2008 with the July 2009 reversal) and half way mark on the Nov 2007 to Dec 2008 rally around 1.5325/50 to hold. We can very well see a wide turn with a false break; so watching this progression on a higher time frame is important. If the market doesn’t close below this floor and indicates its intentions to turn higher, only then will we execute our strategy. We will give this until Wednesday or Thursday to develop before we remove open orders; or we will cancel orders should there be a confirmed drop below 1.53.
Event Risk for the Euro Zone and Canada
Euro Zone – Both German and France (Europe’s largest economies) have already reported positive growth and the ECB has maintained a significant yield advantage over most of its counterparts. However, the strength these considerations would imply is severely dampened by the fact that other regional economies are struggling to recover and the central bank has done everything possible to warn the market that policy will be held steady from some time. This sets the euro down right in the middle the range of risk appetite and therefore makes it highly susceptible to the price action from crosses that do have a distinct risk reaction. This will be the primary concern next week with many of the markets on the verge of a possible trend-reviving, bullish breakout. Should we in fact back away from the edge, it would put the euro in a better position to respond to the event risk on the economic docket. The investor sentiment data will be interesting considering the markets’ activity these past months and amplified interest rate and growth forecasts. The regional inflation indicator will have a more specific tack feeding directly into otherwise murky interest rate expectations.
Canada – The Canadian dollar is playing two roles. On the one hand, this is an economy that is lagging in its recovery of interest rates and economic growth; but it is also an economy that is a heavy commodity exporter (which has put the currency in considerable demand with the Asian recovery). This is a dichotomy of fundamental roles that will no doubt be rectified with risk appetite. Should sentiment continue to rise, the demand for natural resources will maintain its ascent. Alternatively, a collapse in optimism will cull demand for production trends that seem to be running ahead of actualized growth. As for economic data on the Canadian docket, there are just a few notable releases; and only one has a history of market impact. Topping the docket is the September consumer inflation figures which could ground fundamental traders to the reality that interest rates are not likely to be lifted anytime soon.
| Data for October 12 – October 19 |
| Data for October 12 – October 19 | ||
| Date (GMT) | European Economic Data |
| Date (GMT) | Canadian Economic Data |
| Oct 13 | German ZEW Survey (OCT) |
| Oct 13 | New Housing Price Index (AUG) |
| Oct 13 | Euro Zone ZEW Survey (OCT) |
| Oct 14 | New Motor Vehicle Sales (AUG) |
| Oct 14 | Euro Zone Industrial Production (AUG) |
| Oct 15 | Manufacturing Sales (AUG) |
| Oct 15 | Euro Zone CPI (SEP) |
| Oct 16 | Consumer Price Index (SEP) |
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at [email protected].
