April didn’t start out too well for the Canadian Dollar, but it’ll probably end up great for it. That’s thanks to the Bank of Canada, which decided to cut the stimulus yesterday and hinted about rising interest rates in the very near future. Rates are what really drive the sentiment on the market, so we didn’t have to wait long to see significant movements on pairs with the Canadian Dollar.
What’s amazing is that those movements didn’t happen in random places. Before the statement from the BOC, CAD was technically on a very slippery slope, particularly in pairs with USD and EUR.
Let me show you the situation on the USDCAD. Here, the price was in a long-term downtrend but yesterday, the price was breaking both important down trendlines! In theory that was very bullish for this pair, therefore negative for the Canadian Dollar, that is, until the BOC stepped in.
The Canadian dollar strengthened immediately and the price reversed creating a bearish engulfing pattern. What’s more is we saw a false bullish breakout, which almost always is a great opportunity to trade in the opposite direction. Now we’re back below downtrend lines, ready for another drop.
A similar situation can be spotted on the EURCAD. Here, we also do have a bearish engulfing on a daily candlestick chart (green area). We also have a false breakout, which, in this case, is above the horizontal resistance on the 1.507 (yellow). In addition to this, we have a bounce from the mid-term down trendline (green) and also bounce from the 38,2% Fibonacci. Well, based on my understanding of price action, all that is pretty bearish. Sentiment is negative, as long as we stay below the green down trendline.
In the case of USDCAD, everything seems pretty clear, on the EURCAD too, but only from the technical point of view, because today we have ECB! We all know what can happen if ECB surprises the market; none of the technical analyses work and traders go bananas.
Will that be the case on the Euro today? Well, we are not expecting anything major, so maybe…
For a look at all of today’s economic events, check out our economic calendar.