EURCAD Testing Make-or-Break Level at 1.4260

The EURUSD is the world’s most widely-traded currency pair , so it’s not surprising that this week’s drop to an 11-month low has drawn all the headlines. However, to truly evaluate the single currency’s strength, it’s worthwhile to look at a variety of euro crosses beyond just the EURUSD pair. Unfortunately for euro bulls, the mosaic of euro crosses are painting a generally weak picture: EURGBP, EURAUD, and EURNZD are all at or within striking distance of their 2-year lows, and the chart of EURCAD, the focus of today’s note, may be the worst of all.

On a technical basis, EURCAD has been trending down within a bearish channel since setting a 4.5-year high near 1.5600 back in March. Earlier this week, rates broke to a new 2014 low under 1.4400; moving forward, that level may provide resistance on any near-term bounces in the pair. Most importantly, the unit is consolidating just above 1.4260, the 38.2% Fibonacci retracement of its 3500-pip, 7-month rally that started last August.

There is at least one sign that this level may provide some long-awaited support next week. The pair’s daily RSI indicator is in oversold territory at 26, suggesting that the sellers may have grown too aggressive of late. That said, the MACD continues to trend lower below both the signal line and the “0” level, suggesting that any bounces that do emerge may only be near-term setbacks within the context of the longer-term downtrend.

If bears are able to push EURCAD below the critical floor at 1.4260 next week, it would pave the way for another leg lower in the pair, potentially even down toward the 1.4000 handle, though that would likely require outright QE from the ECB. Meanwhile, conservative traders may wish to fade any bounces toward previous-support-turned-resistance at 1.4400. Until or unless EURCAD can break out from its bearish channel, the trend is a friend to traders.

Source: FOREX.com