The Euro rose against the basket of developed economic currencies earlier this week, following an upbeat economic outlook issued by Mario Draghi, President of the ECB, at the monetary policy meeting held last week. The Canadian dollar, on the other hand, turned weak after the US virtually shut down Canada from the NAFTA talks while nearing an agreement with Mexico. We expect the EURCAD pair, which currently trades at 1.5210, to decline in the days to come due to the reasons given below.
Despite striking an optimistic tone, ECB President Mario Draghi hinted that a rate hike is only on the cards towards the end of 2019. Draghi told the media that the Governing Council is convinced that Eurozone inflation will likely reach a “level close to, but below 2%” even after ending the quantitative easing program by the year-end. The dovish statement made the market trim down its interest hike expectations to 0.10%, from 0.25% previously anticipated. Additionally, German and Italian manufacturing PMI data indicated a slowdown of the manufacturing activity in the Eurozone.
Markit economics reported a decline in the Italian Manufacturing Purchase Managers’ Index (PMI) to 51.5 in July, from 53.30 in the earlier month and below analysts’ expectations of 53. Likewise, the market survey firm also reported a slight decrease in German Manufacturing PMI to 56.9 in July, from 57.30 in the previous month. Analysts did not expect any change in the PMI data.
While the Eurozone is seeing a slight economic slowdown, the Canadian economy recorded a surprisingly strong GDP growth rate, brushing away NAFTA related issues.
According to Statistics Canada, the GDP grew 0.5% m-o-m in May, surpassing analysts’ expectations of a 0.3% increase. In April, the economy grew 0.1% when harsh climatic conditions affected businesses.
Canada is also reaping rewards from a rise in energy prices. Non-OPEC production recorded a new high in April, up 405,000 bpd to 47,159,000 bpd. With a production increase of 317,000 barrels, Canada provided the majority of the increase. The US buys most of the Canadian supplies. So, economic data and interest rate scenario is expected to keep the EURCAD pair bearish in the short-term.
The historical price chart indicates the EURCAD pair is declining after facing resistance at 1.5420 levels. The next major support exists only at 1.5000. Furthermore, the oscillator of the moving average is moving in the negative region. Therefore, we are anticipating the currency cross to remain bearish in the short-term.
We wish to open two trades simultaneously using the analysis. The first one would be a short position in the Forex market. We prefer to enter near 1.5180, with a stop-loss order above 1.5260. An order to cover the short position would be placed near 1.5000 levels.
The second trade would be an investment in a put option contract. While purchasing an option contract from a reliable binary broker’s platform, we will choose a date around August 10 for the expiry of the option. We prefer to invest when the EURCAD pair trades near 1.5180 in the Forex market.
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.
