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EUR/CAD Revisited- Scalp Opens Up Broader Trend

EUR/CAD Revisited- Scalp Opens Up Broader Trend

2011-08-02 20:05:00
Michael Boutros, Strategist
Share:
EURCAD_Revisited-_Scalp_Opens_Up_Broader_Trend_body_Picture_2.png, EUR/CAD Revisited- Scalp Opens Up Broader Trend

Today’ scalp revisits a EUR/CAD trade last week which played out quite favorably hitting all our levels including our extended break limit target. A relief rally in the euro over the past few sessions provides ideal entry points for further scalps to the downside. A daily chart shows the pair remaining in a well defined descending channel after failing to breach above the convergence of the 38.2% Fibonacci extension taken from the October 25th and June 8th crests and upper bound trendlines resistance at 1.3775. A dead cross of the 50 and 100-day moving averages seems likely over the next 24-hours as the euro continues to come off. Although the pair did break above our topside barriers later in the week, a move back within our levels sees the scalp setup intact. Accordingly our bias on the trade will remain to the downside.

EURCAD_Revisited-_Scalp_Opens_Up_Broader_Trend_body_Picture_3.png, EUR/CAD Revisited- Scalp Opens Up Broader Trend

A 30min chart shows the pair bottlenecking into an embedded short-term wedge formation as the euro continues to pair gains made during last week’s rally. Preferred short entry targets are held at the 23.6% Fibonacci extension taken from the July 13th crest 26th crests at 1.3650 backed by the 1.3675 and the 1.37-figure. Support profit targets eyed at the 50% Fibonacci extension at 1.3590, followed by the convergence of the 61.8% extension and short-term trendline support at 1.3560. A break here sees subsequent floors just above the 76.4% extension at 1.3520.

With a 2-hour average true range of just 36.21, profit targets on said scalp should be between 25-30pips depending on entry. Note that the scalp will not be active until a rebound off of resistance target 1 at 1.3650 or a confirmed break below the 38.2% Fibonacci extension at 1.3615. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Key Thresholds

A daily downward sloping RSI of 45.74 suggests risk to the pair remains to the downside after rebounding off the 50 mark, a level is has been unable to break above since late June. We reckon a breech above the topside limit at 1.3710 negates the bearish bias on the trade with such a scenario eyeing topside break-targets at the convergence of upper bound trendline resistance dating back to the June 8th peak and the 1.3740 resistance level. Likewise a break below the bottom limit at the 1.3520 risks further losses for the euro with downside targets eyed at 1.3490, the 100% Fibonacci extension at1.3465 and 1.3430.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

1.3650

Resistance 2 Target

30min

1.3675

Topside Limit

30min

1.3710

Topside Limit Break-Target

30min

1.3740

Support 1 Target

30min

1.3590

Support 2 Target

30min

1.3560

Bottom Limit

30min

1.3525

Bottom Limit Break-Target

30min

1.3490

Reference Values

Indicator

Timeframe

Level

Fibonacci Extension – 0%

1hour

1.3713

Fibonacci Extension – 23.6%

1hour

1.3653

Fibonacci Extension – 38.2%

1hour

1.3616

Fibonacci Extension – 50%

1hour

1.3587

Fibonacci Extension – 61.8%

1hour

1.3557

Fibonacci Extension – 76.4%

1hour

1.3520

Fibonacci Extension – 100%

1hour

1.3461

10-SMA

Daily

1.3623

20-SMA

Daily

1.3613

50-SMA

Daily

1.3858

100-SMA

Daily

1.3851

RSI

Daily

45.37

Average True Range (14)

4hour

36.21

Related Economic Data Releases

Notwithstanding significant swings in markets sentiment, event risk for the trade rests primarily with the euro with the German Services PMI, Eurozone services & composite PMI, and retail sales on tap for tomorrow. The docket is highlighted by the retail sales report with consensus estimates calling for a print of -1.0% y/y, a slight improvement from the -1.9% print seen a month earlier. A stronger than expected print on the data flow could see a relief rally for the euro and upset our bias, while a weaker than expected print would likely see accelerated losses for the single currency in our favor. There is no data on the Canadian docket for the remainder of the week.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

EC

7/29

7:55

MEDIUM

German Purchasing Manager Index Services (JUL F)

52.9

52.9

EC

7/29

8:00

MEDIUM

Euro-Zone Purchasing Manager Index Services (JUL F)

51.4

51.4

EC

7/29

8:00

MEDIUM

Euro-Zone Purchasing Manager Index Composite (JUL F)

50.8

50.8

EC

7/29

9:00

MEDIUM

Euro-Zone Retail Sales (MoM) (JUN)

0.5%

-1.1%

EC

7/29

9:00

HIGH

Euro-Zone Retail Sales (YoY) (JUN)

-1.0%

-1.9%

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex for updates on this scalp and other trades.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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