ftu_072110_eurcad

- Weekly and Daily: The EUR/USD is beginning to show weakness. Recent fundamentals support the Loonie, and the USD/CAD may be breaking out of a triangle pattern towards parity.

- With a weak euro, and a strong Canadian dollar, the EUR/CAD is also sliding this week. In fact, looking at the weekly, we have seen a very persistent slide since the end of 09.

- Only recently in June have we seen the euro pare some of the losses (not yet 38.2%). However the daily chart shows a strong reversal candlestick action as the RSI touched the overbought zone.

- Now, the EUR/CAD may have turned the corner and there may be a rally in the long-term. That is if the market can show support near 1.30, a confluence of 61.8% retracement and 50-period simple moving average.

- However, a break suggests that the prevailing bearish mode is continuing towards the 1.2450 low. Let's look at the 4H chart to assess the current decline in more detail.

    ftu_072110_eurcadh

    • 4H: The momentum in the 4H chart is what I want to focus on. Even if the long-term look of the EUR/CAD could have turned bullish or at least first ranging, the short-term momentum is extremely bearish, especially if the RSI continues lower into the oversold zone.
    • This would mean the RSI came straight down form the overbought zone into the oversold zone without crossing or even close to touching its 5-period simple moving average.
    • This is what some call a falling knife for those trying to long, and a runaway train for those who want to short.
    • This is a bearish signal, but we are still within the development of the signal. Assessment of this reversal is not over until we see a reaction, or a pullback.
    • If a rally is weak, we may have a bearish outlook at least in the short-term towards 1.30.
    • As always, the risk of waiting for a pause is that the decline can reach the 1.30 level without a correction, but then we will just move on to the next setup.

      Fan Yang Currency Analyst Commodity Trading Advisor

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