Technical Sentiment: Bearish

Key Takeaways

• German Retail Sales posted -1.4% decline month to month;
• Euro area Unemployment Rate remained steady at 11.5%, CPI Flash Estimate in line with expectations at 0.3%;
• Mixed data from Canada, with GDP m/m up 0.3% while RMPI and IPPI dropped more than expected.

Canadian Dollar extended its gains against Euro this week, breaching the 1.4400 price pivot zone. We could see levels as low as 1.4000 – 1.4100 early in September, however traders need to cross one last hurdle before this is possible.

Technical Analysis

On Tuesday, 26^th August, EUR/CAD finally broke below a crucial price pivot zone, between 1.4408-1.4440, triggering a steep sell-off which lasted only for a day. Since then price action has bottomed at 1.4278/87 for three consecutive days; however there are no bullish signals to confirm a bounce since sellers remain in control for now.

Based on major swing highs and lows there are no support levels in this area. If we look at Fibonacci retracement levels, the story changes and a confluence appears at approximately 1.4265. Two levels merge in this area: 38.2% based on the Low of 1.2950 and the High at 1.5584, together with 50% retracement from 1.2127 up to 1.5584. Stochastic continues to show extreme oversold conditions on the large timeframes without bullish price action signals. A bullish bounce off 1.4265 could start a meaningful up to 1.4408, but we advise traders to wait until 1.4346 is broken before they start buying.

While the bearish scenario remains intact, without bullish price action signals, we have to remain focused towards the downside. A breach below 1.4260 will open the way for more losses down to 1.4100/16 and eventually to the large psychological handle of 1.4000. A correction will be needed, in order to shed current oversold conditions, if traders want to go even lower than that.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets