Euro rally takes a breather as focus turns to Canadian CPI

As we had expected, the euro continued its upsurge yesterday even as the European Central Bank tried to appear as dovish as it possibly could in the current circumstances. Mario Draghi, the ECB President, diverted the attention away from the appreciating single currency at his press conference. The market interpreted this as a sign that Draghi and his ECB colleagues are not too concerned about the impact of the euro on Eurozone exports. It is now widely expected that in its September 7 meeting the central bank will make its intentions clear regarding the future of the QE stimulus programme. But after a massive range expansion yesterday, today the single currency is in consolidation mode. Clearly some bullish speculators will be happy to book profit ahead of the weekend and reassess whether it still makes sense to hold a bullish view on the currency. A small correction would not come as a surprise to me now, but so far we haven’t had any technical or fundamental signals to suggest the top is in for the euro.

Canadian dollar in focus ahead of CPI and retail sales

While the euro surged against the dollar, its gains were relatively mild against other stronger major currencies. One such currency is the Canadian dollar, which has been on a tear ever since the Bank of Canada first turned hawkish before raising interest rates. The Canadian dollar will be in focus again today due to the release of Canadian inflation and retail sales data. Headline June CPI is expected to print -0.1% month-over-month. Meanwhile core retail sales are expected to have remained flat after surging a good 1.5% the previous month. Unless the numbers are significantly weaker than expected, the Canadian dollar should remain bid.

EUR/CAD better pair to look for potential short opportunities than EUR/USD

Thus, if the euro's rally were to fade a little today then the EUR/CAD might be the better currency pair to potentially trade short than the EUR/USD, not just because of the Canadian dollar's strength but also due to the ongoing weakness in the US dollar. Indeed, the USD/CAD pair is currently in a strong downtrend despite the volatility in oil prices. The EUR/CAD meanwhile has tried to break the key 1.4670 resistance level a few times this week, but so far it hasn't succeeded. As this was a key old support level, a decisive break above it would suggest the sellers are losing control. However, the fact that price held above the key breakout level of 1.4485 recently is bullish, as is the fact that price is holding above the 200-day moving average. So taking everything into account, the EUR/CAD looks finely balanced. But until that 1.4670 level breaks decisively, we are on the lookout for a possible breakdown in this pair.