EUR/CAD could extend drop with Canadian data in focus

Today is fairly light on the data front. The only notable exception will be Canadian inflation and retail sales figures, which will be released later at 13:30 BST (08:30 EDT). CPI inflation is expected to have risen in April by another 0.3% like it did in March. Meanwhile, retail sales are also expected at have risen by 0.3% month-over-month in March, while core sales, which exclude automobiles, are expected at have risen 0.5% after the previous month’s disappointing flat reading.

As my colleague James Chen pointed out in his USD/CAD report yesterday, “the energy-correlated Canadian dollar has been helped along recently by a sharp surge in crude oil prices in the aftermath of US President Trump’s announced withdrawal from the Iran nuclear deal last week.” But if you look at the USD/CAD, you wouldn’t really notice much strength in the Canadian dollar, as the currency’s strength is masked by an equally strong US dollar. Thus, the CAD’s strength is more noticeable against other weaker currencies, such as the pound, euro and yen.

Indeed, with the EUR/USD breaking down recently, and the USD/CAD remaining fairly stable, this has helped to push the EUR/CAD cross below a key support area. The cross has dropped below its 200-day moving average and long-term trend line around the 1.5200 area and previous low at 1.5150. These levels were formerly support, so they are now the new resistances to watch. Unless the Canadian data badly disappoints expectations today, the EUR/CAD could now be on the verge of further falls. There is not much further support seen until the psychological 1.50 handle now and this could be the next bearish objective today. The subsequent bearish target may be the previous 2018 low around the 1.4815/20 area.

As things stand we will turn cautiously bullish on the EUR/CAD on the first sign of a bear trap; for example, if rates goes back above the broken 1.15150 support area again. But a clear bullish development would be if a prior high was taken, in this case 1.5320.