EURCAD: Could the 2-day rally be just a correction?

EURCAD lifted to a two-session high at 1.5007, which is about 18% up on the 8-week low seen yesterday. A sharp 3%-odd dive in oil prices yesterday took the wind out of the sails of the Canadian currency. The Presidential critical tweet of rising oil prices that asked OPEC to “relax and take it easy” knocked oil prices sharply lower to the detriment of the energy/commodity heavy S&P/TSX.

EURCAD’s down-channel remains unbroken from the latest rally, which does not yet seem sufficient to confirm a reversal to the upside. The overall outlook remains deeply to the negative side, as price action is consistent on creating lower lows (Friday’s candle breached November’s low). Additionally the asset holds below 50- and 200-day EMA, with 50-day EMA looking lower and further extending its distance from 200-day EMA.

Meanwhile, technical indicators are mixed intraday, but configured negatively in the bigger picture. In the 4-hour chart, RSI has been flattening at 60, while MACD turned positive with signal lines still sloping below neutral zone. These, along with the long down tail in the last 4-hour candle, suggest that bears haven’t given up yet. Hence negative bias still holds. A swing lower to the immediate Support at 1.4970 (50-period EMA) could suggest that the 2-day rally was simply a correction to this long-term decline. Next Support is held at between 1.4920-1.4930.

Resistance levels come in at 1.5035 (Tuesday’s peak). If the pair confirms a break of the latter, then the next levels to be watched northwards are at 1.5070 (February 14 peak and 50-day EMA) and at 1.5110.

Canadian January CPI data is due out tomorrow, for which an unchanged 0.0% m/m reading is expected, as weaker gas prices and a stronger currency compete with another possible jump in air transport and/or telephone services. The BoC has been looking past swings in the airfare component, and that should again be the case for January if another such swing manifests. Total CPI is projected to slow to a 1.3% y/y pace in January from 2.0% in December.  As-expected data would be of little consequence for the Canadian Dollar.

Click here to access the Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.