EURCAD has sold off sharply in August, but it looks like the pair is prime for forex trade retracement back to an area of interest. Price could pull up to the broken support area at the 1.4400-1.4450 psychological levels, which are close to the 38.2% Fibonacci retracement level.
Stochastic is already in the overbought zone, indicating that forex trade selling pressure could return as soon as it crosses lower. For now, the oscillator is showing that a bit of buying momentum is left and that price could still reach the nearby Fib level.
Forex Trade Levels
Shorting at the 1.4400 handle with a stop at 1.4500 or higher could yield at least a 1:1 return on risk if one aims for the previous lows at 1.4250. Going for new lows could improve the forex trade reward ratio, but it would be prudent to move the stop to entry or trail it once price tests the previous lows.
The event risks for this forex trade are the upcoming ECB rate decision and the Canadian jobs release. For today, the BOC is set to make its monetary policy statement and no major changes are expected.
As for the ECB, additional easing measures or dovish remarks from Governor Draghi are being priced in and could lead to a return of euro weakness. For now, most euro pairs are in correction mode, setting up the stage for forex trade retracement setups later on.
The longer-term EURCAD timeframes indicate that price could still fall to the next support zone at the 1.4000 major psychological level. Of course this could be a probable forex trade if the BOC takes a more optimistic stance while the ECB addresses the need for more stimulus in the euro region. In this case, adding on the break of the previous lows at 1.4250 could also be an option.
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