The EUR/CAD sold off on Friday, with the pair giving back the advance from earlier this week, and the pullback from 1.4130 may gather pace as market participants expect the European Central Bank to scale back the rate hikes from earlier this year. According to Credit Suisse overnight index swaps, market participants are pricing a 100% chance for a 25bp rate hike, and the central bank may also show an increased willingness to expand its nonstandard measures in an effort to ease the ongoing turmoil within the financial system. In turn, we may see the EUR/CAD continue to retrace the rally from earlier this month, and the pair may fall back towards the 38.2% Fibonacci from the 2008 high to the 2010 low around 1.3640-50 to test for near-term support. As market participation thins ahead of the weekend, I will sit pat for the time being and will wait for some confirmation before taking a trade on the EUR/CAD.
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