Today’s Forex Guide

EUR CAD Forecast: ECB and BOC Statements | Euro + Canada Economy


Oct.20.2015

Since I last talked about the EUR/CAD pair (Euro against Canadian dollar) Mr. Euro and Ms. Canada have been banging their heads on Fibonacci retracement levels, but have not been able to get out of a consolidation. However they may find an escape with their respective  up coming central banks policy statements. Ms. Canada is also excited about the Canadian election results from yesterday,which could make a long-term effect on her dance moves on the forex dance floor. Are you ready for an all-in-one forex trading strategy and a EUR CAD forecast?

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Canada Economy

1- Canada election: Liberals won for the first time in 10 years

As exciting the the whole election campaign was in Canada (it went on for 78 days, longest since like for ever) and as adorable it is that Canadians think that was a long campaign (cough, sarcasm in progress) the results were actually interesting because Canada's Liberal Party  decisively won the general election, ending nearly a decade of Conservative rule.

2- Liberals may increase fiscal spending: No more easing?

What did the Canadian elections have to do with the Canadian dollar forecast, you ask? It all has to do with fiscal spendings and monetary easing. You see, under normal conditions, a currency's value is expected to go down when fiscal spending drops, or central bank applies easing to their economy.

In Canada's case, now that a  Conservative government is replaced by a Liberal government, market participants are expecting the new government to increase fiscal spending. That means the Bank of Canada (BOC) may not be inclined to to stimulate the economy anymore by a quantitative easing anymore, which would in turn make their currency stronger.

So to sum it up, Canada's election results got Ms. Canada (aka Loonie or CAD as forex geeks put it) dancing with joy.

3- Oil prices

Oil prices fell on Tuesday as the market participants try to make sense of the whole declining US oil production and the expectations of Iranian barrels adding to the already high global supply.

European oil companies are in fierce competition for the best oil and gas fields in Iran when Western sanctions are lifted, while U.S. energy firms watch from the sidelines. But keep in mind that as global demand for electricity/battery powered vehicles grows and in turn electricity is fueled by renewables, there will be lower demand for oil.

So there you have it: lower demand and more supply for oil and the markets showed once more today that the lower US production hasn't been strong enough to break the oil prices out of the current range.

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4- Bank of Canada's rate statement scheduled for Wednesday, Oct. 21

The Canadian central bank has already cut interest rates twice this year and it is now sitting at 0.50%. Their action came in  efforts to shield Canada economy from incoming headwinds. But with oil prices settling down and new Prime Minister in the house, it looks like the bank's governor would hold off to new rate cuts for the time being.

As I mentioned in my previous coverage of Ms. Canada, the International Monetary Fund seems pretty negative on Canada’s economic prospects for next year, warning that the depressed commodity prices which have slowed the Canadian and global economies in 2015 will remain a major threat to growth in 2016. Canada's manufacturing industry is in a rut as the September Ivey PMI posted a sharp drop from 58.0 to 53.7. To top it off, the labor market is still plagued by underlying weaknesses, as full-time employment and hiring in the natural resources sector are on the decline.

With that, BOC Governor Poloz might decide to add a few more cautious remarks in his official statement, highlighting the current challenges faced by the oil industry and the Canadian economy.

A surprise interest rate cut obviously would drop Ms. Canada like a hot potato, however the chances of that happening is pretty low.

Euro Economy

Mr. Euro has been sending out mixed signals all over the forex dance floor and the European Central Bank (ECB) has been pretty vague about what they think about their future actions. In their previous monetary policy meeting, ECB president Mario Draghi (aka Super Mario) admitted that they’re willing to increase their stimulus program in case inflationary pressures continue to weaken. While he tried to downplay market expectations of more QE in his next speeches, the euro zone’s negative headline CPI reading for September had most forex traders pricing in the idea of further ECB easing. To further back up the easing anticipation, data from Germany has also been pretty shaky lately.

On the up side, Euro zone's retail sales came in better than expected while they still dropped from the previous reading.

Super Mario is now set to announce his policy decision on Thursday’s London trading session. No actual interest rate changes are expected, but forex market watchers are on the lookout for any easing hints that would help their overall EUR CAD forecast.

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Technical Points

While the EUR/USD pair has been on an overall upward channel, the EUR/CAD pair has been confused about its direction.  In my previous EUR CAD forecast I talked about a possible formation of a Head and Shoulders Bottom  pattern on the monthly chart. If this scenario proves to be true, we could look at the recent pullback of the pair as a mere retracement towards famous Fibonacci levels, because the H&S Dude is a bullish reversal chart pattern.

 

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On the daily chart however, the pair has started a brand new consolidation chart pattern as it dances through the Ichimoku cloud while remaining between the 23% and 38% levels of Mr. Fibonacci.at 1.4850 and 1.4550 respectively. The RSI is heading down below the neutrality area so a break below the pivot points could open doors for further drops towards 1.4250.

Market Sentiment

Just like the EUR/CAD pair, Forex market participants also seem pretty confused with the positive and negative news pushing them back and force. Half of the traders are bullish while the other half is bearish.

This backs up our wait-and-see scenario from the Fundamental analysis and any major moves should be a result of a hot market moving event.

EURCAD daily chart forex trading analysis

EUR/CAD Forex Trading Strategy

If you are already in a bullish position, you may need to patient with the market to turn in your favor, maybe as long as a few months. If you caught the recent pullback in time and are in a bearish position, I would aim a bit higher than our first support level at around 1.4550 as the pair has repeatedly refused to touch this level. If you are not in a position, kudos to you! Wait for a confirmation of the Head & Shoulders pattern for a bullish scenario, or a break below 1.4250 for a bearish one.

Last but not least, here are the important levels to watch out for:

Support Levels Turning Point Resistance Levels
1.4250 1.4850 1.5160
1.40 1.45 1.55

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Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.

 

 

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