EUR CAD in focus ahead of Canadian retail sales crude stocks data

The EUR/CAD could be a big mover this week, which could provide some decent trading opportunities. Already we have seen the latest Eurozone Purchasing Managers’ Indices (PMIs) and later today we will have the Canadian retail sales figures as well the US crude inventories data which could lead to sharp moves in WTI prices and in turn the oil-driven Canadian dollar.

Markit’s European PMIs, released earlier, showed some mixed readings, with French manufacturers reporting a rebound in activity while the pace of expansion slowed in Germany’s manufacturing and services sectors. Overall Eurozone services activity dipped to 54.0 from 54.4 in August, while manufacturing slipped to 52.0 from 52.3, both disappointing expectations slightly. Nevertheless, the figures were not as bad as some had feared, leading to a small rebound in both the euro and European stocks. Overnight, the Chinese Caixin PMI showed manufacturing activity had dropped to a 6.5-year low at the start of this month there, which triggered a flight to safety in Asian markets.

Looking ahead to today’s North American session, Canada’s retail sales figures will be released at 13:30 BST (08:30 EDT), followed by the US Energy Information Administration’s (EIA) crude oil stocks data at 15:30 BST (10:30 EDT). Headline retail sales in Canada are expected to have risen 0.5% month-over-month in July compared to 0.6% in June. Sales excluding automobiles (i.e. core sales) are expected to have increased by 0.4% versus 0.8% the prior month. Meanwhile the EIA is expected to report a 1.0 million barrel decline in the weekly crude stockpile levels.  But given that last night’s stocks data from the American Petroleum Institute, an industry group, showed a sharper than expected drop of 3.7 million barrels, oil bulls will now want to see a similar reading from the official data today. For oil prices to extend their gains, we will now need to see some sharp and sustained destocking in crude inventories as the glut still remain at historically high levels.

• Bullish outcomes for EUR/CAD

o   EUR/USD rebounds

o   Canadian retail sales disappoint expectations

o   Oil prices resume downward trend, say as a result of an unexpected build in US crude inventories

• Bearish outcomes for EUR/CAD

o   EUR/USD extending its decline

o   Oil prices rally

o   Canadian retail sales beat expectations

From a technical point of view, the EUR/CAD looks like it may have hit a ceiling already this year when it failed to break through the 2014 high of around 1.5550/85 last month. In other words, it may have formed a double top reversal formation. From there, it has retreated quite sharply before reaching a low just under 1.4600 earlier this month. Here, it found decent support, as one would have expected as the 38.2% Fibonacci retracement at 1.4590 roughly converged with the previous resistance level of 1.4645. So, this 1.4590-4645 range was (and still is) a key support zone, which held firm upon the first test. The corresponding rally from here ended last week when the EUR/CAD made back 50% of its losses from August’s peak, around the 1.5050-80 range. Consequently price has now broken below a pivotal short term support level at 1.4845, which has since turned into resistance.

The short-term bias is thus bearish while price holds below 1.4845, but things could turn ugly for this pair if the abovementioned support range of 1.4590-4645 also gives way on a daily closing basis. If seen, the EUR/CAD may then drop all the way to around 1.4000: as well as a psychological level, this is where 61.8% Fibonacci retracement (1.3990) meets the 200-day moving average (currently at 1.4025).

However, if the bulls manage to reclaim the 1.4845 resistance level then price may go on to at least test the aforementioned 1.5050-80 resistance. A daily closing break above the 1.5050/80 area would technically be a bullish development.