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Mid-term trading idea FX EUR/CAD – bear speculation: loonie to rise in anticipation of a rate hike from the BoC

Trading opportunities on the currency pair: On the expectation that the Bank of Canada will raise interest rates on the 12th of July, as well as the recovery in oil prices, I’m expecting the pair to fall to around 1.4340 – 1.4395. If the first half of my prediction works out, then we can set a target of 1.3880 for the 14th of October.

Background

The last idea on the EUR/CAD pair was published on the 23rd of January. At the time, the euro was trading at 1.4243. Back then, there was a double base model forming on the weekly chart, which should have come to completion with the closing of the daily candlestick above 1.4360. The target was at 1.4780. Before going up, the price fell to 1.3784. The target was reached on the 25th of April.

Current situation

After reaching 1.5258, the pair went into a correctional phase, where it has remained for the last 5 weeks. The EUR/CAD rate has corrected by 38.2% from the upwards movement seen from 1.3784 (15/02/17) to 1.5858 (02/06/17). The price returned to the trend line, which was broken through on 24/04/17 at 1.48.

Now we consider the classic scenario; a breakout of the trend line followed by a return to it to test the veracity of the breakthrough. In theory, we should be looking at a rebound from the current level, but I’m forecasting a slide for the euro to 1.3880 by the 14th of October this year.

I’d like to note that the euro is falling against the Canadian dollar while oil quotes are also falling. However, falling oil prices are generally a powerful support for buyers. It was exactly because of a sharp drop in oil prices that buyers were able to reach their target level of 1.4780.

On Wednesday the 12th of July, the Bank of Canada will sit down to discuss interest rates. We’re expecting increased trading activity on currency pairs involving the loonie at this time. The market is expecting the central bank to tighten monetary policy with a rate hike of 75 bp. The first target zone is 1.4340 – 1.4395. With increased interest rate and a recovery in oil prices, this level should be reached by the 24th of July. If the first part of my prognosis comes true, we can set 1.3880 as our target for the 14th of October.

EURCAD weekly chart. Source: TradingView



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