After the ECB press conference last week, where the ECB announced that its open ended bond buying program will resume on November 1st 2019 at a rate of €20 billion per month and the deposit facility rate was cut by 10 basis points to -0.50%, the Euro rallied across the board. This took the EUR/CAD from its intra-day low of 1.44336, the bottom range of its support zone, to an intra-day high of 1.47135, close to its descending 61.8 Fibonacci Retracement Fan Resistance Level and the bottom range of its resistance zone which is located at 1.47190. A sell-off followed which took price action below its 38.2 Fibonacci Retracement Fan Resistance Level where this currency pair is trading now.
What is the Fibonacci Retracement Fan?
The Fibonacci Retracement Fan is a different visualization of the Fibonacci retracement sequence which outlines important support and resistance levels in technical analysis. Those levels warrant a closer look and offer entry and exit levels for trades together with other aspects of the analysis.
The Force Index, a next generation technical indicator, confirmed the initial breakout in the EUR/CAD as well as the subsequent breakdown in price action; this is marked by the green rectangle in the chart. This technical indicator has now move into negative territory which suggests that bears have taken control of price action, but the overall uptrend remains intact. The magnitude of bearish momentum quickly decreased as this currency pair moved below its 38.2 Fibonacci Retracement Fan Resistance Level and the Force Index should now be monitored closely for a reversal above the 0 center line from where bulls can take control once again.
What is the Force Index?
The force index is considered a next generation technical indicator. As the name suggests, it measures the force behind a move. In other words, forex traders will get a better idea behind the strength of bullish or bearish pressures which are driving price action. The indicator consist of three components (directional change of the price, the degree of the change and the trading volume). This creates an oscillator which in conjunction with other aspects of technical analysis provides a good indicator for potential changes in the direction of price action. It subtracts the previous day closing price from today’s closing price and multiplies it by the volume. Strong moves are supported by volume and create the most accurate trading signals.
The EUR/CAD is currently trading above and below its 38.2 Fibonacci Retracement Fan Resistance Level. The Canadian Dollar, a commodity currency heavily influenced by the price of oil and gold, received a fundamental boost by the sharp rally in oil prices following the this weekend’s attack on crucial Saudi Arabian oil infrastructure. This paused the rally in this currency pair and led to the current sell-off. Forex traders should pay close attention to the intra-day low of 1.45554, which marks the current low of the sell-off and is located just below the 38.2 Fibonacci Retracement Fan Resistance Level. Should this level hold together with a recovery in the Force Index, a price action reversal into its resistance zone is expected.
What is a Resistance Zone?
A resistance zone is a price range where bullish momentum is receding and bearish momentum is advancing. They can identify areas where price action has a chance to reverse to the downside and a resistance zone offers a more reliable technical snapshot than a single price point such as an intra-day high.
The impact on the oil market from the attacks has resulted in a risk premium which is now priced into oil as well as the Canadian Dollar. Barring any further negative developments in the commodity sector which will result in higher prices and the current retracement of the rally in the EUR/CAD, a price action recovery could materialize. The next resistance zone is located between 1.47190 and 1.47654, marked by the red rectangle. The 61.8 Fibonacci Retracement Fan Resistance Level is located just below it. With the EUR/CAD below its 38.2 Fibonacci Retracement Fan Resistance Level, a breakout could follow with the release of today’s economic data out of the Eurozone which is expected to show an improvement in economic sentiment.
What is a Breakout?
A breakout occurs if price action moves above a support or resistance zone. A breakout above a support zone could signal a short-term move, such as a short-covering rally which occurs when forex traders exit short positions and realize trading profits, or a long-term move such as the start of a trend reversal from bearish to bullish. A breakout above a resistance zone signals strong bullish momentum and an extension of the existing uptrend.
EUR/CAD Technical Trading Set-Up - Breakout Scenario
Long Entry @ 1.45650
Take Profit @ 1.47150
Stop Loss @ 1.45250
Upside Potential: 150 pips
Downside Risk: 40 pips
Risk/Reward Ratio: 3.75
A failure in the Force Index to recover above 0, a breakdown below its uptrend and a violation of the intra-day low of 1.45554 could extend the sell-off in the EUR/CAD down into its next support zone, located between 1.44336 and 1.45027 and marked by they grey rectangle. While the technical picture points to a price action recovery in this currency pair, a fundamental surprise which will either impact the Euro in a negative way or the Canadian Dollar in a positive way could add to the losses. The downside is expected to be limited to the its support zone.
What is a Support Zone?
A support zone is a price range where bearish momentum is receding and bullish momentum is advancing. They can identify areas where price action has a chance to reverse to the upside and a support zone offers a more reliable technical snapshot than a single price point such as an intra-day low.
EUR/CAD Technical Trading Set-Up - Sell-off Extension Scenario
Short Entry @ 1.45450
Take Profit @ 1.44350
Stop Loss @ 1.45800
Downside Potential: 90 pips
Upside Risk: 35 pips
Risk/Reward Ratio: 2.57
