EUR/CAD Has To Choose Between Bearish Channel Or 200 DMA
Faraday Research | May 11, 2018 02:26PM ET
EUR/CAD is the latest cross to hesitate at a technical juncture, where it has to choose between maintaining a bearish channel or respect its 200-day average.
For the past few weeks EUR/CAD has provided an almost perfect divergent theme. Eurozone data has continued to underperform and push back expectations of ECB tightening, while markets have rekindled their belief that BoC is on track to raise rates again. This has allowed EUR/CAD to provide a decent daily trend structure for bears.
Since the 1.6151 high, EUR/CAD has shed over 6% and done so while bearish momentum provided timely retracements within a textbook, bearish channel. Using this data alone, shorts certainly appeal and if the downtrend is to continue, it has potential to test the key structural low at 1.4817 (a further 2.5% depreciation).
This is all well and good, but the cross has a key technical juncture to mull over. Not only has it stalled around the 200-day average, but the spinning top Doji also closed above the September bullish trendline. With such a confluence of support, we see the potential for a bounce higher, although eventual short positions would still appeal while it remains either within the bearish channel, below the 1.5442 high or ideally both. If markets continue to believe the BoC will hike soon and European data underperforms, we fancy our chances of a short trade in due course.
BoC next meets on May 30 and there’s speculation it could be their next hike. In its April statement, the Boc closed by saying it’ll be “watching Q2 data very closely,” which leaves CAD crosses susceptible to whipsaws around calendar events in the leadup to May’s meeting. Therefore, we’ll step aside for now but will keep a close eye out for a resumption of the bearish trend.
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