On August 14th, we had forecast a rally in the EURCAD pair on the basis of strong French employment data and short-term bearishness in the price of crude oil. Furthermore, we had mentioned our plan to open a long position in the currency market near 1.4980. A call option was also our choice to profit from the binary market. As anticipated, the currency pair hit a high of 1.5080 and gave us profit in both the trades. Last week, the rate hike announced by the Bank of Canada resulted in a steep fall in the currency pair to 1.4610 levels. The downtrend was also fuelled by the poor service sector data from the Euro zone and a decline in the German factory orders. We anticipate the EURCAD pair to undergo a deeper decline due to the reasons given below.
According to the Federal Statistical Office (Statistisches Bundesamt) in Wiesbaden, Germany’s trade balance declined to €19.5 billion in July, from €21.2 billion in the previous month. Analysts had anticipated a trade surplus of €20.30 billion. The figures reported by Destatis underlines the negative impact of the Euro on the bloc’s export competitiveness. ECB President Mario Draghi had warned recently that the common currency’s strength may affect the Euro zone’s economic recovery.
Later on Friday, Statistics Canada reported a net 22,200 job additions in August, compared with 10,900 in July, and better than analysts expectation of an increase of 17,800 jobs. The economy had added 374,300 jobs in the past year, with 60% of them being full-time jobs. The unemployment rate also fell to 6.2%, versus analysts’ expectation of 6.3%. In July, the unemployment rate was 6.3%. It is the third consecutive month of decline in the unemployment rate.
The Bank of Canada raised the interest rates as it was optimistic of seeing an increase in the months ahead, although recent rate data confirmed its expectations. During the second quarter, the capacity utilization rate increased to 85%, the highest since 2007, and better than analysts’ expectation of 84.9%. In the previous quarter, capacity utilization was a downwardly revised 83.2%.
Capacity utilization rose to 84% in the oil and gas sector, and industrial rose to 87.7%. Thus, soft economic data from Germany is expected to keep the Euro weak, while robust capacity data and a decline in the unemployment rate keeps the Canadian dollar bullish.
The EURCAD pair has been declining after facing resistance at 1.4840. The currency cross has also broken the trend line support (blue dotted line), as shown in the image below. Technically, the RSI indicator’s reading below 50 also confirms weakness in the currency pair. Thus, we expect the downtrend to continue.
In order to gain from the analysis, we intend to open a short position in the EURCAD pair. The ideal entry-level would be 1.4620. To reduce risk, a stop-loss order would be placed above 1.4740. We wish to book a profit near 1.4420.
Similarly, we may pick a put option offered by any of the dependable brokers listed here. A strike price of around 1.4620 and a contract expiry date around September 19th is suitable for the 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.
