The Canadian dollar is under the hammer as the US and Canada stand poles apart in the NAFTA related talks. Thus, despite a rally in the crude oil and good manufacturing data, the Loonie is unable to gain ground against most of its rivals. The Eurodollar, on the other hand, remains bullish due to a strong German PPI and flash manufacturing PMI data. After trading between 1.5000 and 1.5070 for the past two weeks, the EURCAD pair has closed above 1.5100. We anticipate the currency cross to rally further due to the reasons given below.
During the US election campaign, Donald Trump vowed to renegotiate the NAFTA agreement, which he believes to be largely against the country’s interests. His argument was based on a rising trade deficit with Mexico and Canada, and the shift of blue-collar jobs across the Southern border. In the past year, the negotiators have met four times to finalize an agreement that addresses the concern of all the parties.
However, there is no major breakthrough so far due to a tough stance was taken by the US negotiators. According to analysts at TD Securities, if a new agreement is not in place before March 2018, there is a high probability of a breakup through the triggering of article 2205 by the Trump administration. If that happens, according to analysts, the Canadian dollar could plunge by 20%. On the economic front, the retail sales data further dampened the mood towards the Loonie.
Statistics Canada revealed that the seasonally adjusted retail sales increased 0.1% m-o-m in September, versus analysts’ expectation of a 0.9% growth. In August, the retail sales dipped 0.1%. Excluding volatile goods, the retail sales rose 0.3% in September but fell short of the market’s expectation of a 0.9% growth. In August, the core retail sales declined 0.4%. While the Canadian economy is slowing down for the past few months, the Eurozone economy continues to improve.
According to the Munich-based Ifo Institute, the German business confidence continues to soar high, with the index hitting a record high of 117.5 in November. In the previous month, the Ifo Institute reported a reading of 116.8. The November figures were higher than analysts’ expectation of 116.60. The index is based on a survey of 7,000 manufacturing firms in several sectors, including construction, wholesale, and retail. Thus, fundamentals support a rally in the EURCAD pair.
Technically, the EURCAD pair is moving along an ascending trend line as shown in the price chart below. Notably, it broke the ascending triangle pattern last Friday. The base of the triangle (1.5020) now acts as strong support. Further, the stochastic oscillator has entered the bullish zone. Thus, we can expect a continuation of the currency uptrend.
In order to gain from the uptrend, we are planning to open a long position in the Forex market. An entry near 1.5150 is preferred for the trade. To protect the trading account from large losses, we would certainly place a stop-loss order below 1.5020. We will unwind the long position near 1.5380.
We may speculate in the binary market as well, based on this analysis report. If we decide to go ahead, a call option would be bought when the pair trades near 1.5150. We will also choose a date around December 4 for the expiry of the contract.
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.
