Ross Woodfield
Blackwell Global Investments Limited
The Euro has been in a downward slide against all of its trading partners for some time now, no least the Canadian dollar. It has found a bit of support recently and we are getting close to the sharp end of the triangle, so we can expect a bit of action to come.
The disappointing data has returned to the Euro zone overnight with Manufacturing and Service PMIs missing estimates for Germany, France and the EU as a whole. This could spurn the ECB into acting once again, something ECB President Mario Draghi has not been shy of talking about.
Canada on the other hand is looking ever stronger with growth and inflation picking up. The situation just south of the border is also looking up and that is no doubt having an effect on the Canadian recovery. Inflation figures are due out later on today for Canada and the market is estimating no change to Core CPI, with a small dip in monthly headline CPI.
If these CPI figures are slightly better than expected, the pressure will mount on the Bank of Canada to begin to lift rates to rein in inflation. The Canadian economy is beginning to look like it will be able to handle an interest rate rise.
When it comes to the charts, the support has been strong at the 1.4040 mark, however the selling pressure on the Euro is strong, hence the squeeze. If CPI comes in stronger than expected, we will see another test of the support. Long term, this is likely to give out, especially as the triangle squeezes the price even more.
The price looks to have formed somewhat of a head and shoulders that denotes a reversal of the minor uptrend. Currently it has broken through, and pulled back to the support (now resistance) at 1.4196. From here it is likely to reject off and move lower. If the Canadian inflation figures come in above forecast, look for price to target support levels further down such as 1.4170, 1.4122 and 1.4084 and of course the solid support at 1.4040. If we see a movement higher, look for further resistance at 1.4250, 1.4295 and the bearish trend line, which is likely to act as dynamic resistance.
The EURCAD pair is consolidating under the selling pressure of the Euro. Look for an improving situation in Canada to put further pressure on the bottom of the triangle that is forming on the daily charts.
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