The EUR/CAD pair broke down below a pretty significant area during the session on Monday. This was an area that featured a significant uptrend line, although it had been pierced on a gap lower in late June, the 50 day exponential moving average, and the 1.4750 level which has been rather supportive recently.
Because of this, we could be witnessing a bit of a trend change. It’s a bit early to call victory for the sellers, but the truth of the matter is that during the Tuesday session we rally did just enough to test that vital area again, and failed. This is a very ominous sign, especially considering that the daily candle is looking quite a bit like a shooting star. Granted, it’s not a “true” shooting star as it is not at the top of an uptrend, but it means the same thing in the end. The buyers simply could not keep the pressure up.
Oil markets have a part to play
While the WTI Crude Oil market broke above the $48 level during the session finally on Tuesday, leaving a consolidative rectangle behind, the Canadian dollar strengthened overall. Most people think of the USD/CAD pair right away when it comes to oil, but the reality is that a lot of the nuances of that pair have changed. After all, the Americans have been drilling more and more oil lately.
That brings a bank to this pair. The Europeans don’t have that luxury. So while the USD/CAD could very well grind lower, this pair could move much quicker. I feel that the risk to reward ratio is certainly worth taking a shot at in this pair, as I think the market on a break down below the bottom of the Tuesday range could be reaching for the 1.4250 level, and then eventually even lower than that. At this point in time, a trend change could be possible.
Obviously, time will tell. But at this point in time price action in this pair certainly has caught our attention. With that being said, we believe that most people will probably miss this move as traders tend to be creatures of habit, and rarely think outside of the usual correlations.