EUR/CAD may continue to show substantial weakness after being unable to show any significant signs of Canadian dollar weakness after U.S. officials announced on Friday the delay of the heavily debated Keystone XL pipeline. If and once this approved, this will benefit the Canadian economy, Western Canada Select oil, and the loonie. Currently Canada spends around $50 million a day transporting their oil.
After making a multi-year high in March, the bullish trend that was established last May finally appears to be breaking. The rally from 1.3066 to 1.5585 last month already had a sharp decline towards the 23.6% retracement level, which coincides with the psychological 1.50 handle. For the past few weeks, price has rallied over 250 pips, but stalled once reaching the 1.5269 level. Major resistance lies at the 1.5275-1.5320 area. If price can recapture that area, which will most likely only be on a euro positive trading day, price may target a move towards 1.5400.
The oversold loonie may gain some traction as we enter the summer months. An outcome regarding the Keystone XL pipeline will most likely not occur until the end of the year. Even if we continue to see oil prices decline, a big pullback is warranted here. Key support will come from the 100-day SMA which currently lies at the 1.50 handle. Major support falls on the 38.2% Fibonacci retracement at 1.4623.
The trade: Sell EURCAD at 1.5205 with a stop loss at 1.5305 and a take profit at 1.5005 The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading