The EUR/CAD pair broke down during the session on Tuesday, as the Euro was sold off against just about everything. The chart attached to this article is still down, and that’s done on purpose. As you can see, we have sliced through a very significant uptrend line, and this could in fact be a massive signal to start selling. The question of course then becomes why sell this pair? I can to find that answer in one word: oil.
Yes, the Euro is insignificant trouble and I do recognize this. However, the oil markets look like they are trying to wake up a little bit, and I believe that even though we sold off in the oil markets during the day on Tuesday, this market is broken, while the oil market is trying to fight to go higher. If it does that, it will simply bring more money into Canada as a matter of correlation.
Technical and fundamental reasons could line up.
The technical and the fundamental reasons for shorting this market are starting to line up in my opinion. The world is recognizing that the European Central Bank is probably going to do something to loosen monetary policy, while the oil markets look like they’re ready to go higher. That is reason enough to short this market. However, let us not forget that this is also a Europe versus North America play. While the rest of the world focuses on the EUR/USD pair, the truth is this pair moves very similar, and the spread is quite reasonable it most brokers. In fact, my broker only charges 3 ½ pips.
Ultimately, I think that this market could very easily go to the 1.40 level on a breakdown. However, I do want to see a fresh, new low which essentially has me selling somewhere right around the 1.44 handle. Can we get below the 1.40 level? I see no reason not, but certainly I would expect it bounce down at that large round number. Also, it was previously an area of interest so there should be a certain amount of orders down there that need to be cleared out.
