The markets seem to be settling into the weekend – and just at the edge of major ranges. This would seem the optimal time to jump in and take advantage of potentially aggressive reversals back into broad channels. However, volatility is still just below the surface and it would not be difficult early next week to revive momentum and see otherwise clear technical levels act as the catalyst for major breakouts.
[B]Why Would EURCAD Hold a Range?[/B]
[B]• Levels to Watch:[/B]
[B]-Range Top: 1.6325 (Fib, Pivot, Trend)
-Range Bottom: 1.5355 (Fib, Pivot)[/B]
[B]• [/B] Risk appetite looks to remain dormant heading into the weekend; but this fundamental current has a significant role to play next week. Many pairs (including EURCAD) have come to test range extremes; and stabilization of the edge of a new trend in market activity does not last for long. Next week, the balance in risk appetite and aversion will likely tip, and guide this pair along the way. However there is still a wealth of indicators to take note of.
[B]• [/B] There are technical levels in place for EURCAD that could verify a range. However, until there is a reversal from the Fib/pivot/double bottom confluence around 1.5350/400, the market is still caught in a significant wave of bearish momentum. Below 1.5350 there is little support to mention; but a reversal would similarly have room to run.
[B]• [U]Long[/U]: Half-size entry orders will be placed at 1.5380 to take advantage of the double bottom.
• [U]Stop[/U]: An initial stop of 1.5260 should be wide enough for even a significant false breakout. To secure profit, move the stop on the second lot to breakeven when the first target hits.
• [U]Target[/U]: The first objective equals risk (120) at 1.5500 and the second target is set to 1.5715. [/B]
[B]Trading Tip[/B] – [B]The markets seem to be settling into the weekend – and just at the edge of major ranges. This would seem the optimal time to jump in and take advantage of potentially aggressive reversals back into broad channels. However, volatility is still just below the surface and it would not be difficult early next week to revive momentum and see otherwise clear technical levels act as the catalyst for major breakouts. The danger is particularly tangible in EURCAD which has plunged nearly 1,000 point in little more than two weeks. After the particularly sharp plunge through Thursday, it seems support has stepped in at least temporarily with the long-term pivot and Fib confluence at 1.5350/400. This is a relative figure and will only be able to stand should momentum falter. Therefore, this is only a position for those that are very comfortable with risk. For those willing to face a breakout, a position has to have a low risk profile and very pliable stops. Our strategy calls for half-sized positions; but turning the volume down even further is recommended. Furthermore, the stop is set purposefully wide to allow for a significant tale to form should we see a reversal as this is a common occurrence for turns in this pair. Since we are dealing with incredible levels of momentum and volatility, we will cancel all open orders by Monday’s close.
[B]Event Risk for Euro Zone and Canada[/B]
[B]Euro Zone – [/B]The euro has been stubbornly quiet against most of its counterparts for months. The fundamental outlook for this currency is uncertain – especially with other economies and markets reporting alterations to their forecasts. This past week, data was relatively light; but net bullish. A business sentiment survey and timely PMI indicators have reported steady progress on the recovery from recession (though many of the indicators crossing the wires have yet to push into positive territory). Bullish speculators are still well-funded after the Bundesbank offered an early read on German growth that saw only a modest contraction in the second quarter and positive expansion returning through the second half. Confirmation of economic activity will not come until the quarterly readings on August 13th; but in the meantime, there are numerous indicators that can contribute to forecasts. German consumer confidence and employment figures are key statistics from the largest component of the economy. Price data will offer its own view of economic health through gauging the probability of painful deflation or perhaps a provocative return of high inflation. [B]
Canada – [/B]After a week of tremendous volatility, the Canadian dollar looks to be running thin on fundamental fodder. A hawkish outlook on growth read after the Bank of Canada’s rate decision and through their Monetary Policy report put the currency ahead of the pack. With financial crises behind us and stabilization found in all corners of the world, speculators are now looking to discount which economies are looking to recover the quickest. Fortunately, the one indicator scheduled for release next week will have a very clear impact on such forecasts. Though not the quarterly data most market participants look for, the GDP reading for May will actually track the progress of the eighth largest economy with greater granularity.