EURCAD Range Offers Equal Opportunity at Support and Resistance

How stable is the EURCAD Range? •    Levels to Watch: -Range Top:       1.6000 (Trend, Fib, Pivot) -Range Bottom: 1.5600 (Fibs, Pivot) •    The Canadian employment data proved more market moving than expected. Crossing the wires at five times expectations, the report was as straightforward a bullish reading on the economic outlook as could be provide. What’s more, the evolution of a risk appetite that developed after the better-than-expected US employment data would bolster momentum to a fever pitch. Yet sentiment is already turning and a retracement is probable.  •    Despite the sharp increase in volatility over the past few hours, the technical situation is largely unchanged for EURCAD. The larger pattern is a closing wedge formation that goes back to at least the beginning of the year. However, support can be drawn closer at a well-worn pivot, Fib confluence at 1.5600. Suggested Strategy •    Short: A reduced entry order at 1.5625 is necessary given the current level of volatility. •    Stop: Volatility at reversals means a stop of 1.5550 is essential (if not wide enough). To secure profit, move the stop on the second lot to breakeven when the first target hits. •    Target: The first target is larger than initial risk at 1.5750 (125). The second is 1.5825.

Trading Tip – There are times when a range setup should be played to only one side of the formation (such as when there is a larger trend to back the congestion); and then there are times when both resistance and support can be played. Yesterday, we laid out a EURCAD setup; and the general strategy proved sound. However, a highly reactive economic release (the Canadian employment report) would prevent the pair from pushing any further to the extreme of its range; and the subsequent reversal would span 300 points in a matter of hours. Looking for new range setups for the end of the week; EURCAD still looks to be the most attractive formation the currency market has to offer. Not only has today’s decline brought the pair back down to the floor of its range; but the price action that brought it there is highly unstable. While previous swings of 300-points have instigated follow through; it is usually during trends that such a scenario develops. This time around though, congestion is well-established and the markets and the plunge looks otherwise winded. Our position looks for entry very close to the range floor (essentially in the zone of tails for price action around this level). To move back into this region of the range, will likely require another short-lived run. Such a move is unlikely before liquidity drains for the weekend; so we will have to look for a setup to occur at the beginning of next week. We cancel all open orders by the end of Monday.

Event Risk for the Euro Zone and Canada

Euro Zone – The European Central Bank (ECB) is taking measured but sure steps towards reining in its emergency stimulus. After its announcement that the benchmark lending rate would be held at 1.00 percent for another month, President Jean Claude Trichet told revealed the group’s decision to let the unlimited, fixed rate 12-month loans to expire after December and further let the six-month loans end in the first quarter. Officials may be adamant in their dismissal that this is a step towards a rate hike; but regardless of timing, it is. As for event risk going forward, there are few notable economic releases on the euro’s economic docket. German factory activity and trade are among the few second tier indicators on deck. The ECB monthly report however could alter speculation modestly.

Canada – Canadian event risk is looking to heat up significantly over the coming week. Friday’s offers are perhaps the most market moving offers of the period. While the country’s monthly jobs report may receive less publicity than its US counterpart, the net change figure is nonetheless a valid source of volatility. A significant surprise in the change or rate figures can easily run short-term technical levels. Also due Friday is the Ivey PMI figure for November. One of the most commonly cited indicators for business activity, this is a gauge that indirectly measures future growth, trade and a myriad of other conditions. After the weekend, the BoC rate decision will mostly likely not bring a remarkable change in policy; but it can be used to time an eventual change.