The Eurodollar started rising against the Canadian dollar in mid-September, after Mario Draghi, the ECB President, shrugged away concerns about the impact of appreciating the Euro on the bloc’s fragile recovery. The Commitment of Traders (COT) report released on September 15th indicated a decline in the long positions in the crude oil futures market. As crude oil is one of the top export revenue earners of Canada, the Loonie started weakening. Thus, in the past ten days, the EURCAD pair has risen by about 400 pips to 1.4730. We anticipate a continuation of the uptrend due to the reasons presented underneath.
On Friday, IHS Markit Economics reported an increase in the Eurozone flash manufacturing PMI to 58.2 in September, from 57.4 in the previous month. Analysts had expected a decline in the manufacturing PMI reading to 57.2 in September. It was the highest recorded reading since 2011. The report pointed out that factories had built up an order surplus at the fastest rate in the sub-index’s 15-year history.
IHS Markit also reported an increase in the Eurozone flash services PMI reading to 55.6 in September, from the downwardly revised 54.7 in the earlier month. Analysts did not expect any change in last month’s reading.
Commenting on the order-book growth and strong backlog, Chris Williamson, a chief business economist at IHS Markit, stated that factories in the 19-member bloc is trying to expand their capacity as quickly as possible. The policymakers at the ECB will certainly get emboldened by the PMI data.
According to Statistics Canada, consumer prices increased by a mere 0.1% in August, versus a 0.2% rise anticipated by economists. During the previous month, the inflation rate was unchanged. On an annualized basis, consumer prices increased 1.4%, following a 1.2% jump in the earlier month. Still, the reported figures were short of analysts’ expectations of a 1.5% advance.
Core retail sales, which excludes highly volatile items such as food and energy, grew 0.2% m-o-m in August. The reported growth was half of what was expected by analysts. Notably, Statistics Canada had downwardly revised July’s core retail sales growth to 0.4%. Thus, fundamentals favor a continuation of the current EURCAD rally.
The price chart indicates that the EURCAD pair has found support at 1.4680. Furthermore, the stochastic oscillator is also in the bullish zone. The next resistance for the pair is only at 1.4990. Thus, we can expect an upswing in the EURCAD pair.
To gain from the probable uptrend, a long position may be opened by us at 1.4680 levels. To limit risk, a stop-loss order would be placed at or below 1.4580. Simultaneously, an order to book profit will also be placed at 1.4980.
Alternatively, we may go for a call option valid for a period of one week. The entry will be made near 1.4680.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
