We have come to the end of the week with many of the majors and risk-sensitive pairs conspicuously maintaining their ranges. However, this does not diminish the significant risk of breakouts that comes with high volatility and the market’s magnetism towards extreme technical boundaries.
[B]How stable is a EURCAD Range?
• [U]Levels to Watch[/U]:
-Range Top: 1.5650 (Fib, Pivot)
-Range Bottom: 1.5225 (Trend, Pivot)[/B]
• Interest rate differentials and growth considerations have been and will continue to be prominent drivers for EURCAD price action. The ECB has provided for a significant interest rate gap over its Canadian counterpart and recent commentary suggests that the next alterations in policy will favor a growing disparity. Next week’s ECB rate decision and commentary will offer a benchmark. As for growth, quarterly data from both economies will factor in.
• Technically, EURCAD congestion is commonplace. There has been a general deflating range (wedge) developing since the late 2008 rally sputtered. Recent chop has developed only after a sharp plunge through July. The congestion so far this month has something of a bullish bias, but resistance has held a consistent horizontal plane.
[I][B]Suggested Strategy[/B][/I][B]
• [U]Short[/U]: Thursday’s reversal suggests an entry at 1.5625 can be tagged and not just in a tail.
• [U]Stop[/U]: A stop set at 1.5715 is not very wide considering volatility, but covers swing highs. To secure profit, move the stop on the second lot to breakeven when the first target [/B]
[B]Trading Tip[/B] [B]– We have come to the end of the week with many of the majors and risk-sensitive pairs conspicuously maintaining their ranges. However, this does not diminish the significant risk of breakouts that comes with high volatility and the market’s magnetism towards extreme technical boundaries. There is inherent risk with setting up a range-based strategy for any pair early next week; but we can do our best to lower the threat. EURCAD has the technical credentials to hold its broad and sometimes volatile swings within definable boundaries. Multiple daily highs over the past three weeks have confirmed a general range of resistance around 1.5650/75. The presence of both a 38.2% Fib and notable pivot further add weight to its influence. At the same time, history has shown us that sudden bouts of volatility and momentum can come out of the blue. Our strategy looks to compensate with a tight entry and stop that is set above recent swing highs. Our first target will be set to one and a half times the initial risk to improve the overall profile of the entire position (trading in two halves). [/B][[B]Fundamental influences[/B]](http://www.dailyfx.com/story/topheadline/Currency_Market_Bull_Trend_Stalling_1251419522763.html)[B] should be monitored carefully. Risk appetite’s influence is somewhat dampened for this pair; but cross market flows could catalyze an unfavorable move. Also, [/B][[B]scheduled event risk[/B]](http://www.dailyfx.com/story/bio1/US_Dollar__Euro__Commodity_Dollars_1251489277216.html)[B] could pose a problem. GDP and employment data is due from both and the ECB decision is specific risk. We will cancel all open orders by Tuesday. [/B]
[B]Event Risk for Switzerland and Japan[/B]
[B]Euro-Zone[/B]– Investor sentiment isn’t a clear cut price driver for the euro. A yield advantage and relatively strong economic outlook (according to policy makers) sets it in the riskier end of the spectrum. However, reservations have been held by the market and the offsetting consensus has put it right in the middle of pack. On the other hand, we have plenty of scheduled event risk in the days ahead to set of volatility. A consistent round of market moving data really kicks off starting on Tuesday with German employment data. This is followed by the second measure of Euro Zone 2Q GDP numbers. The component data can alter the bearing on economic forecasts for second half growth. The ECB rate decision on Thursday is top event risk; but the central bank is not expected to change rates. Instead, commentary can give insight into timing while the following days European Commission forecasts will set growth speculation.
[B]Canada [/B]– While the Canadian dollar is a notable member of the commodity bloc (the frequent leaders of the risky FX group), it does not exhibit the same response to risk trends as its Aussie and kiwi counterparts. With a policy authority that has made its intentions to keep lending rates depressed for some time and growth that has suffered every bit as much as its American counterpart, this currency is neither a prime carry or safe haven currency. For volatility, the economic calendar may provide next week. At the beginning of the week, the June GDP data will round out the 2Q reading. The Canadian economy has been touted as outperforming its primary trade partner (the US); but an expected 3.0 percent annualized contraction will dampen such claims. The next round of data doesn’t come until the end of the week. Employment and business activity data for August is key, leading data for the world’s eighth largest economy.
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>[/I]