EURCAD formed a double top on its 1-hour time frame, suggesting that a short-term FX selloff is about to take place. Price is still a few pips away from testing the neckline support, but a downside break from that area could confirm that a reversal from the previous uptrend has begun.
Stochastic is moving up for now, which means that euro sellers haven’t had much energy to push for a neckline break just yet. A bit of consolidation could still be possible before the oscillator reaches the overbought area and turns lower, which might then indicate a potential drop.
FX Selloff Catalysts
News that the Eurogroup meetings ended with no deal for Greece’s debt reforms led the euro to slide against its forex counterparts at the start of the week. In addition, commodity currencies drew support from the Chinese central bank’s surprise interest rate cut over the weekend, as the additional stimulus could shore up demand for raw materials.
The short-term exponential moving average on the 1-hour chart has crossed below the longer-term EMA, confirming the potential FX selloff. Should these EMAs continue to move further apart, bearish momentum could pick up and be strong enough to sustain a drop to the next floor around the 1.3100 major psychological level.
On the other hand, if the neckline support at 1.3500 holds, another bounce up to the previous highs at 1.3700 could be possible. This might lead to the formation of a triple top, which is still a valid signal for a potential FX selloff. An upside break past those highs would indicate that the uptrend is still intact.
There are no market-movers lined up from both the euro zone and Canada today, suggesting that consolidation could also be possible. However, the path of least resistance remains to the downside as the euro zone is facing more fundamental risks while the BOC has previously clarified that they are not looking to cut rates further.
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