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Forex Watchlist: 2014-10-16

Good afternoon!  With the fear trade calming down a bit, I spotted my usual technical setup EUR/CAD to play my bearish bias on the euro and potential bounce back from recent risk aversion moves in the markets.

EUR/CAD 4 Hour Forex Chart
EUR/CAD 4 Hour Forex Chart

I’m thinking of playing my favorite technical setup of hopping into a longer-term trend on a pullback, and this time it’s a short on EUR/CAD after rallying on recent risk aversion moves. The fear of a global slowdown (particularly in China and Europe) has had forex traders taking off long positions in higher-yielding assets like the Canadian dollar and buying back the funding currency in their respective pairs.  In this case, the euro was the funding currency for EUR/CAD and the pair was pushed up to retest the major psychological level of 1.4500.

We can see by the row of upper shadows on the forex candlestick chart above that it looks like sellers have been holding the 1.44 – 1.45 area very well.  And with the stochastic indicator showing potentially overbought conditions, it looks like the pair is poised to reverse.  So, it’s a good idea to jump in now right?

Unfortunately not because we’re about to run into a string of very big Canadian economic data points: CPI tomorrow for a fresh read on inflation, and then retail sales and the Bank of Canada monetary policy decision, both on Wednesday, October 22nd. Given the recent weak global data, it’s a good chance we may get weak data and a bearish reaction.  But since the Loonie found support after today’s weak Canadian manufacturing data, it might be that the selling may be overdone.

It’s really a tough call  at the moment, which is why I’m putting this pair on my forex watchlist for now but looking to put on orders after tomorrow’s Canadian CPI data. If we see a pop higher there, any resistance up to 1.4700 may be very tempting. Stay tuned!

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