Volatility is still extraordinarily high; and some key pairs have made progress in tentatively developing trends. Add to that the threat of a heavy round of scheduled event risk Wednesday and Thursday; and we have the makings of a breakouts and trend development – not the ideal situation for range traders. However, EURCAD is relatively well suited for the action.
[B]Why Would EURCAD Hold a Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.6200 (SMA, Fib, Pivot)[/B]
[B]-Range Bottom: 0.6950 (Trend, Fib)[/B]
· While there is a correlation to market sentiment behind every currency pair in the FX market; EURCAD’s attachment to the volatile shifts in risk appetite are relatively modest. This aid the broad congestion that has developed behind this pair since the beginning of the year – especially with a larger trend behind risk rumbling. [Scheduled event risk](http://www.dailyfx.com/calendar/index.html?currentWeek=/events-calendar/2009/0426/&direction=none&collector=allInFolderDateDesc&view=week&timezone=GMT¤cyFilter=USD|JPY|GBP|CHF|AUD|NZD|&importanceFilter=) is the real concern. The euro’s docket has a string of releases while Canada has Feb GDP.
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· Over the short-term, EURCAD has developed significant [momentum behind the bear crowd](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Euro_Crosses__Favor_Weakness_in_1240343491034.html). However, since Dec 1st, this pair has carved a gently rising trend that received a third conclusive test last week. This is a relatively quick retest of support by the presence of the long-term 61.8% Fib at 1.5775 adds to our confidence.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Half-sized entry orders will be placed at 1.5815 to push entry close to our rising trend.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.5715 covers last week’s swing low and the rising trend but not Feb lows. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (100) at 1.5915 while the second[/B][B] target is set to 1.6115. [/B]
[B]Trading Tip[/B] – Volatility is still extraordinarily high; and some key pairs have made progress in tentatively developing trends. Add to that the threat of a heavy round of scheduled event risk Wednesday and Thursday; and we have the makings of a breakouts and trend development – not the ideal situation for range traders. However, EURCAD is relatively well suited for the action. Technical, a dominant, five-month old rising trendline and long-term Fib are presenting a sturdy floor for price action. More importantly, neither of these currencies has an indicator on its docket that has proven itself to be a consistent breakout driver through the past. Furthermore, this pair has a very low correlation to general risk trends – an important trait in today’s markets. Despite the favorable traits of this setup, we still must recognize the potential development for a major trend reversal. Our entry is particularly aggressive to allow for a stop that is both tight while still providing a good buffer over the rising trend. With our position size cut in half, our first target is more than reasonable given the average daily range; and the second objective will provide some return on risk while still falling well within the borders of our general range.
[B]Event Risk for Euro Zone and Canada[/B]
[B]Euro Zone[/B] – The euro is still in fundamental limbo. Traditional economic concerns and event risk aside for a moment, the market is still looking for signs that policy authorities’ decision to let up on its financial aid will inadvertently tip the economy into a bigger crisis that could take far longer to correct in the end. This will likely be decided through an unforeseen financial collapse or unexpected turn-for-the-worse in economic growth; but in the meantime, traders can concern themselves with the musings of the ECB. There is a clear split in the outlook for policy among central bank members. Some have released comments that suggest a benchmark below one percent is likely and un-conventional methods are still open. On the other hand, we have seen staunch hawks that believe there is little more that the ECB can do to actually turn growth around. The ultimate conclusion will partially be guided by scheduled event risk due this week. Germany holds most of the cards with inflation, retail sales, retail activity and labor reports all due before the weekend.
[B]Canada[/B] – Is the Canadian dollar still considered one of the strongest currencies among the G8? Price action would suggest so. However, the lack of confidence that policy officials and central banks have expressed over the health of the country’s economy and markets is a glaring contradiction to this lingering bias. We have not yet had the chance to test the Canadian dollar’s correlation to fear since the central bank announced a surprise cut, warned of quantitative easing and lowered its growth forecasts sharply. However, with the next shift in sentiment, we will no doubt see the market cast its vote on the loonie. From the economic docket, only the February GDP release is noteworthy. This is a shorter time frame and certainly lagging; but it could have its influence regardless. We will not expect too much in terms of reaction though.
[B]Data for April 28 – May 5[/B]
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[B]Data for April 28 – May 5[/B]
[B]Date (GMT)[/B]
[B]European Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Canadian Economic Data[/B]
Apr 28
German CPI (APR P)
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Apr 30
Gross Domestic Product (FEB)
Apr 29
German Retail PMI (APR)
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Apr 29
Euro Zone Business Climate (APR)
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Apr 30
German Unemployment Change (APR)
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[I]Questions? Comments? You can send them to John at <[email protected]>. [/I]