EURCAD seems to be bouncing off its recent lows and may be due for a correction to the broken support level at the 1.4100 major psychological level. This lines up with the 38.2% Fibonacci retracement level on the latest swing high and low on the 1-hour forex chart.
If the 1.4100 mark or any of the Fib levels hold as resistance, EURCAD might resume its drop to its previous lows near the 1.4000 major psychological support. Increased selling pressure could even lead to the formation of new lows close to 1.3900.
Stochastic is already indicating oversold conditions though, which means that euro bears are feeling exhausted and that another bounce might take place. This could also be a sign that the ongoing retracement isn’t over and that a higher pullback might happen.
The line in the sand for any retracements is at the 1.4200 major psychological resistance near the 61.8% Fibonacci retracement level. Gains past this point could mean the start of a reversal and a potential climb to the next resistance at 1.4350.
The path of least resistance is to the downside though, as the euro zone is in a fundamentally weaker state compared to most of its major economic peers. However, the economic releases and events in Canada this week might mean a sharp selloff for the Loonie as well.
The major event risk for this setup is the BOC interest rate decision, which might indicate another rate cut from the Canadian central bank. After all, data from the economy has barely shown any improvements and the pickup in oil prices appears to be feeble.
Dovish remarks from the BOC could lead to a rally for EURCAD, as this could mean that further easing moves might take place later on. On the other hand, a slightly upbeat statement could downplay expectations of another rate cut and lead to a recovery for the Canadian dollar.
By Kate Curtis from Trader’s Way