Last week, one more issue was added to the pile of problems faced by the Euro-zone; the $14 billion claim on Deutsche Bank (ETR: DBK) by US regulators. That was more than enough to pull down the Euro against both the safe haven and riskier assets. Speculators used the news to conveniently forget the Canadian economy’s second-quarter contraction, and propelled the Loonie against the Euro. However, the opinion of analysts and contrarians indicate that the EURCAD pair is going to rise again.
The analysts at CIBC Capital Markets revealed that the Eurodollar indeed performs better during the periods of risk aversion. Whenever panic sets in the global market, the investors tend to repatriate the Euros thereby leading to the rise of the common currency. So, the Deutsche bank issue may assist the Euro to gain strength.
In the meanwhile, the Deutsche bank management announced that they are not looking for any government assistance to pay the US regulators. The bank underlined that it has entered into an agreement to sell the UK insurance business Abbey Life to Phoenix Group Holdings (PHNX.L) for $1.2 billion. The announced sale has warded off fears about the solvency of the Deutsche bank. Moreover, speculators believe that the bank will negotiate successfully with the US regulators for a lower fine.
In Canada, Markit Economics reported that the seasonally adjusted PMI (Purchase Managers Index) reading declined to 50.3 in September 2016, from 51.1 in August and below the market’s expectations of 51.5. It can be remembered that the inflation rate has slowed to 1.1% in August, from 1.3% in July. Likewise, the jobless rate was 7% in August, compared to 6.9% in July. Catherine Mann, the chief economist at the Organization for Economic Co-operation and Development (OECD) slashed the GDP growth forecast of Canada to 1.2% in 2016, from 1.7% projected earlier. Thus, fundamentally, we can anticipate the EURCAD to exhibit an uptrend in the weeks ahead.
The EURCAD is moving along an ascending channel as shown in the chart below. The stochastic oscillator is near the oversold zone, thereby indicating the possibility of a technical reversal in the EURCAD pair.
A currency trader should take a long position in the EURCAD pair to make money from the volatility. The entry price for the long position can be near 1.4750. A stop-loss order can be placed at about 150 pips below the entry-level. However, the trader should make sure that the stop loss is below the lower band of the ascending channel. The profit can be booked near 1.4940.
A one-touch call option can be bought with an intention to gain from the uptrend in the EURCAD pair. A target level of 1.4880 and an expiry date in the first week of November would complement the recommended put option trade.
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.
