EUR/CAD has been on a rocket ride higher thanks to the Coronavirus outbreak and other factors, but will a major resistance area slow it down?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on USD/JPY ahead of U.S. economic data, so be sure to check that out to see if there is still a potential play!
|Equity Markets||Bond Yields||Commodities & Crypto|
|DAX: 12351.49 -3.31%
FTSE: 6799.66 -3.45%
S&P 500: 3046.37 -2.25%
DJIA: 26341.74 -2.28%
|US 10-yr 1.261% -0.041
Bund 10-YR -0.556% -0.063
UK 10-YR: 0.442% -0.063
JPN 10-YR: -0.099% -0.062
|Oil: 46.43 -4.72%
Gold: 1654.40 +0.68%
Bitcoin: 8886.46 +2.16%
Etherium: 231.25 +5.85%
Fresh Market Headlines & Economic Data:
- US fourth-quarter economic growth unrevised at 2.1%
- January pending home sales jump more than expected, up 5.2%
- US orders for durable goods slip 0.2% in January
- U.S. jobless claims rise in latest week to 219K in the latest week from a revised 211K the previous week
- Canada’s current account deficit (on a seasonally adjusted basis) narrowed by $2.1B in the fourth quarter to $8.8B
- Oil drops nearly 5%, breaking below $47 as collapse continues
- SEC Quashes Dreams of Bitcoin ETF With Another Rejection
- The annual change in the flash estimate of Spanish CPI stands at 0.8% in February
- Annual Euro area growth rate of broad monetary aggregate M3 increased to 5.2% in January 2020 from 4.9% in December 2019
- ECB signals rising worry over coronavirus spread
- Brexit talks will be tough, short, but agreement possible – Barnier
- Britain, on trade collision course with EU, says it could walk away
- No need to reach for policy ‘panic button’, BoE’s Cunliffe says
Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:
- ECB Guindos speech at 4:00 pm GMT
- Kansas Fed manufacturing index at 4:00 pm GMT
- Fed Evans speech at 4:30 pm GMT
- ECB Lane speech at 7:30 pm GMT
- Fed Mester speech at 8:30 pm GMT
- Japan Unemployment rate & Tokyo CPI at 11:30 pm GMT
- Japan Retail sales, Industrial production, & Foreign investment at 11:50 pm GMT
- U.K. Gfk Consumer confidence at 12:01 am GMT (Feb. 28)
- Australia Private sector credit at 12:30 am GMT (Feb. 28)
- Japan Housing starts & Construction orders at 5:00 am GMT (Feb. 28)
What to Watch: EUR/CAD
On the one hour chart above of EUR/CAD, we’ve got a classic trend higher in the short-term, likely due to what else? the Coronavirus effect. Not only does risk sentiment get more negative every day, thus weakening higher-yielding/risker assets (e.g., oil, Canadian dollar) and driving traders into lower-yielding/safe haven assets (e.g., Swiss franc, Japanese yen, bonds, etc.), but with fears of the Coronavirus hitting the U.S., the Greenback has been taking a hit off of rising rate cut speculation.
The Fed futures market has been pricing in rate cuts for this year on the idea that the outbreak is more and more likely to affect the U.S. economy negatively. Dollar weakness tends to have a bullish euro effect given their large trading relationship, so we may be seeing that priced into the euro rally as well.
So, it’s probably a good idea to be long EUR/CAD if the current themes continue, but the market is approaching a very strong resistance area (1.4700 – 1.47500) that turned away the bulls in the fourth quarter of 2019. If you’re sticking with the bull trend, it may be a good idea to wait for a retest of that area and pullback before considering a long position (potential support around 1.4600/rising trendline), and/or seeing if the market can break higher and pullback before drawing in buying support.
If you’re a bear on EUR/CAD, likely on the idea the recent rally is way overdone and/or the rate of spreading will slow down soon/be contained, bearish reversal patterns around 1.4700 – 1.4750 is the signal to possibly take a nibbler position short. And with a daily ATR of around 85 pips, the potential return-on-risk for a swing position is pretty good if targeting last week’s lows around 1.4300.