The EUR/CAD pair fell hard during the session on Wednesday as it was announced that the European Central Bank could possibly do miniature rate cuts in order to boost the sagging European economy. That of course pummeled the value of the Euro against many currencies, with the Canadian dollar being no different. Because of that, this market plowed down to the 1.40 handle relatively quick, and as a result it appears that we should continue to see weakness in this pair overall. However, you can also see that there is a significant area of support just below, so I am a bit hesitant to start shorting here.
Also, you have to keep in mind that the Canadian dollar itself isn't exactly the healthiest currency at the moment. Granted, it is above the 1.04 level against the US dollar, but it has been falling in value. Recently, although the last couple of weeks have been more sideways than anything else.
Oil and the ECB.
This pair will eventually be decided by both the oil markets, and the European Central Bank. Pay attention to any jawboning that the ECB does, as they could drive down the value of the Euro going forward. I believe that the ECB is trying to find a strong Euro, especially against the US dollar. The biggest problem of course is that this pair tends to move almost in lockstep with the EUR/USD pair, so quite often, you will have the same reaction.
The other possibility is that something happens in the oil markets. The drives the value the Canadian dollar either up or down, and that of course will translate into a significant move over in this market. This market isn't quite as liquid as the USD/CAD pair, but it is liquid enough that the moves are still relatively technical in nature. Because of this, I am perfectly willing to trade this market, especially considering the dynamics of the ECB and the oil markets at the moment. In fact, this could very well be one of the hidden gems of the Forex world right now.
A supportive candle can be bought for a short-term bounce, but I do prefer a break down below the 1.40 level on a daily close in order to start selling again. However, a bounce from here that shows signs of weakness could provide a short-term selling opportunity as well. Short-term traders are going to love this market.
