Starting in September, EURCAD fell below the year-long uptrend line and began to lose momentum. But despite the break of the trend line, it cannot be said that the uptrend has ended before the break of previous bottoms in that trend.
With rising oil and energy prices, the CAD is performing well against the slowing EUR. Brent oil recently broke out of the $90 resistance that had been keeping the uptrend in check since November and has started to eye the $100 mark. Physical supply constraints, China’s rising imports, recovering US oil demand, and falling stockpiles are some of the reasons for this surge, despite a slowing global economy due to high interest rates around the world.
On the other hand, the EUR had a good year but started to lose momentum in recent days. Yesterday, the ECB raised rates one more time but signaled the possible end of the rate-hiking cycle for now. The rate hike, coupled with a dovish statement and strong US data released this week, has weakened the EUR.
Now that the trendline has been broken, the key zone to watch for the medium term is the 1.4230-1.4260 zone. This zone includes the Fibonacci 38.2% level and the last three previous bottoms since December. It could also be seen as the neckline of a possible head and shoulders formation. As long as it holds, there will be a chance for an upside correction with the help of an RSI reversal from 30, which could lead the EURCAD price to 1.45 or even 1.48, depending on incoming data and oil prices. However, as mentioned before, the momentum is shifting against EURCAD, and oil prices are surging, while the ECB is preparing to hit the brakes. Any upward correction that stays below 1.48 could create selling opportunities for traders. Furthermore, a possible downward break of the 1.4230-1.4260 zone could signify even more downward pressure and might ignite even sharper sell-offs that could lead to levels of 1.40 or 1.3730.
