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Canadian Dollar Pares Decline, Euro Halts Rally

Canadian Dollar Pares Decline, Euro Halts Rally

2010-05-24 15:55:00
David Song, Currency Strategist
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05.24_DWL1

The Canadian dollar retraced the overnight decline and remains the only major currency that’s higher against the greenback on Monday, and the loonie may continue to outperform throughout the week as investors expect the Bank of Canada to hike borrowing costs in June. The USD/CAD is slightly lower on the day after falling back from a high of 1.0661, and we may see the dollar-loonie hold a tight range throughout the day after moving only 73% of its daily ATR. However, as the daily RSI continues to pull back from overbought territory, we may see the corrective retracement gather pace this week, which could lead the pair to test the 200-Day SMA (1.0484) for short-term support. At the same time, the short-term momentum behind the upswing is likely to push the pair higher over coming month as the 20-Day SMA (1.0311) looks poised to crosses above the 100-Day SMA at 1.0315, and the USD/CAD may continue to retrace the decline from the previous year as greenback benefits from safe-haven flows.

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The Euro halted the three-day rally and slipped to a low of 1.2346 as investors held a cautious outlook for the region, and the skepticism surrounding the EUR 750B rescue package may continue to weigh on the single-currency as it fails to address the root cause of the debt crisis. The EUR/USD is nearly 180pips lower on the day after moving 112% of its average true range, and price action may hold below the 240-SMA (1.2392) going into the Asian trade as market participants scale back their appetite for risk. However, as the 30-minute RSI bounces back from a low of 23, the euro-dollar may work its way back towards the 120-SMA at 1.2472, but the exchange rate is likely to hold the downward trend from the November highs over the near-term as the EUR/USD continues to trade below the 20-Day SMA at 1.2735.

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To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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