Technical Sentiment: Bearish
Key Takeaways
- Canadian Housing Starts rise to 195K, beating forecast of 177K;
- Euro rallies then slips hard as Draghi indicates ECB is ready to act as soon as June;
- EUR/CAD is about to break a major Daily trend if it falls below 1.5000.
The 2-year EUR/CAD uptrend is about to reverse as technicals line up with fundamentals and the pair is about to break below 1.5000. A support break here will confirm the first major reversal signal. The market might not even wait until tomorrow’s Canadian Employment Change and Unemployment Rate, and only a really disappointing print will slow the action down as far as the Canadian Dollar is concerned. Meanwhile, after waiting for a while for volatility to pick up, EUR traders are likely to continue the sell-off for a while.
Technical Analysis
In March EUR/CAD reached a major Fibonacci Retracement, more specifically 1.5449 – 61.8% from 1.7503 down to 1.2127. The pair traded above this level for a few days, as high as 1.5584, before sliding back down at a fast pace.
On the technical side, a break below the large psychological round number 1.5000 represents an invalidation of the bullish trend. A break leads to the first Lower Low in two years. Long-term traders will have begin unwinding their long positions as price falls deeper below this level, which in turn will create more negative pressure.
A secondary pattern, depicting the same story as the trend break, can be observed on the Daily time frame in the form of a Head & Shoulders formation. The Shoulders Tops are lined up perfectly at 1.5304 and the pattern will be activated once price breaks the 1.5 support.
EUR/CAD has already crossed below the 50 and the 100-Day Moving Averages. The next logical target is the 200-Day Moving Average, currently priced at 1.4572, but price will also encounter an intermediary support level around 1.4788 (price pivot zone from December 2013 – January 2014).
Daily Stochastic is bearish and heading towards oversold territory, but it’s not there yet. This suggests there is plenty more downside available before price rallies and attempts to create a Lower High (to keep the new trend configuration intact).
Resistance lies above today’s high at 1.5235 and ultimately at 1.5300. Only above the second level the bearish scenario will be invalidated completely.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
