Technical Sentiment: Bullish

Key Takeaways

• Euro posted large gains on Wednesday against a basket of currencies;
• The Canadian Dollar tumbled lower throughout the day but appears stable now;
• EUR/CAD is showing a bullish swing configuration of Higher Highs;
• Buyers face a major resistance cluster between 1.4420/60.

EUR/CAD sellers have been swiftly shaken out of the market this week, as price rallied from one resistance to another in a volatile yet precise change in direction. Traders currently face a large resistance cluster which could pose major problems for the newly formed uptrend in the coming days.

Technical Analysis

After forming a triple bottom (or just a perfect double bottom around 1.4011/13), last week EUR/CAD lingered in an unusual tight range which helped alleviate selling pressure without doing any major damage to the downtrend itself. This quickly changed on Tuesday, when price price rallied above the price pivot zone at1.4245, triggering the first wave of stop losses held by short traders. With EUR/CAD stable above the 200 Simple Moving Average on the 4H timeframe, market participants only needed one day to regroup and adjust to this new direction as the Canadian Dollar sell-off picked even more steam across the board.

Spot is currently trading around 1.4440, in what can only be described as a huge resistance/pivot zone cluster. Although EUR/CAD has officially turned bullish now after pricing a Higher High above 15^th September top at 1.4387, we can easily see two completely different scenarios at this particular crossroad.

Correction completed:

1.4420/40 was a large monthly pivot area and price action showed tremendous respect for in during 2013 and 2014 as well. Around 1.4460, EUR/CAD is facing the 100-Day Simple Moving Average coupled with 61.8% Fibonacci correction from the swing high of 1.4733 down to the low at 1.4011. Stochastic has also reached overbought territory on the Daily, suggesting a temporary top could easily form in this area.

While this is not the most likely scenario, if 1.4460 holds as resistance we could see EUR/CAD decline back to 1.4300, possibly 1.4245, in order to re-test previous levels of interest in search for a Higher Low. A drop below 1.4245 could eventually lead back to 1.40.

Additional upside:

Euro is showing real intent of pricing a deep recovery, mostly helped by a correction Dollar. With oil prices dropping and bearish expectations for Manufacturing Sales (Thursday) and Core CPI (Friday), the Canadian Dollar looks set for more losses.

Consequently, if this rally can cross above 1.4460, we could see EUR/CAD eye 1.4733 – 1.4800 within just a few short weeks. Buyers should continue buying dips starting from 1.4380 – 1.4420, while a break above 1.4460 should turn this resistance level into a strong support afterwards.

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