EUR/USD Bear-Flag Persists as ECB Talks Down ’Taper Tantrum’

2016-12-08 15:54:00

Talking Points:

- USD/CAD Pullback Eyes Bottom of Ascending Channel; October Low on Tap?

- EUR/USD Weakness to Persist as ECB Extends QE Deadline & Talks Down ‘Taper Tantrum.’

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.3208	1.3251	1.3196	26	55

USD/CAD Daily

Chart - Created Using Trading View

The near-term pullback in USD/CAD following the Organization of Petroleum Exporting Countries’ (OPEC) November 30 meeting may continue to gather pace over the coming days as the pair clears the November low (1.3264) and works its way towards the bottom of the upward trending channel carried over from May; may see dollar-loonie further retrace the rebound from the October low (1.3006) as long as the Relative Strength Index (RSI) preserves the bearish formation carried over from the previous month.
Despite the lackluster reaction to the Bank of Canada’s (BoC) last interest rate decision for 2016, it seems as though Governor Stephen Poloz and Co. is gradually approaching the end of its easing-cycle as ‘the dynamics of growth are largely as the Bank anticipated,’ and a further recovery in crude may keep the Canadian dollar afloat over the days ahead as the region continues to adjust to the oil-price shock; nevertheless, the broader outlook remains tilted to the topside as the pair preserves the upward trending channel from earlier this year, with Fed Funds Futures pricing a 95% probability for a December rate-hike.
USD/CAD stands at risk for a larger pullback as it carves a near-term series of lower-highs, with a break/close below 1.3160 (61.8% retracement) raising the risk for another test of the Fibonacci overlap around 1.3300 (61.8% expansion) to 1.3310 (38.2% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0618	1.0874	1.0614	135	260

EUR/USD Daily

Chart - Created Using Trading View

EUR/USD quickly pulled back from a fresh monthly high of 1.0873 as market participants digested the fresh developments coming out of the European Central Bank (ECB), and the pair remains at risk of giving back the rebound following the Italian Constitutional Referendum as President Mario Draghi and Co. talk down the threat for a ‘taper tantrum;’ may see the bear-flag formation unfold going into the end of the year following the string of failed attempts to close above the Fibonacci overlap around 1.0780 (100% expansion) to 1.0800 (23.6% retracement).
Even though the ECB announced plans to scale back the asset-purchase program to EUR 60B/month starting in April 2017, the 9-month extension accompanied by the adjustments to the capital key suggests the Governing Council remains in no rush to move away from its easing-cycle as the committee keeps the door open to ‘to increase the programme in terms of size and/or duration;’ the diverging paths for monetary policy may continue to cast a bearish outlook for EUR/USD especially as the Federal Reserve is widely expected to announce higher borrowing-costs at the December 14 interest rate decision.
A closing price below 1.0660 (50% retracement) accompanied by a break of channel support may push EUR/USD back towards the monthly low (1.0505), with a break/close below the 1.0500 handle (50% expansion) opening up the next downside target around 1.0410 (61.8% expansion).