EURCAD previously broke below a double top pattern, indicating that a downtrend is in order. The price formation is approximately 800 pips tall so the resulting selloff could last by the same number of pips.
However, price found support at 1.4600 and is showing signs of a correction. Applying the Fibonacci retracement tool on the swing high and low on the 4-hour chart shows that the 38.2% to 50% levels are close to the area of interest and moving average dynamic inflection points.
Stochastic is on the move up so buyers might be in control of price action, likely allowing price to keep rallying until the nearest Fib. If this holds as resistance, price could drop to the previous lows at 1.4600 or much lower.
RSI is also on the move up but appears to be turning down without even reaching the overbought zone, which means that euro bears are eager to push price down. In addition, the 100 SMA is below the 200 SMA so the path of least resistance is to the downside.
Still, a larger correction to the 61.8% Fib might be the line in the sand, as a break past this area could put EURCAD back on track towards testing the highs near 1.6000.
Event risks for this setup include the rate statements from the Bank of Canada and the European Central Bank. No actual policy changes are expected from the BOC, as they previously mentioned that they’re counting on the government fiscal plan to boost the economy and that a crude oil recovery is imminent.
On the other hand, the ECB is widely expected to increase its quantitative easing program, but a disappointing adjustment could still spur gains for the euro, as it did in the December statement.
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