EURCAD, EURAUD – Unsung heroes of the Eurozone turmoil

About a few weeks ago, we pointed to potential trade opportunities in the Euro cross currencies; the EURCAD and the EURAUD. These two currency pairs got the attention largely for two basic reasons. The Aussie and the Canadian dollars are typically risk-on currencies and tend to rally usually when the markets are quiet and a certain element of complacency sets in. Besides the risk-on factor, another aspect that led us to pick out specifically these two currencies was the fact that the Euro, single currency, despite the headwinds from the Greece crisis has proven to be largely resilient. While we aren’t sure whom to credit this to (Germany or the ECB), it was evident that EURAUD and EURCAD would offer good trading opportunities, especially when considering the ‘noise factor.’

Fundamentals aside, these two currency pairs were also well supported by technical analysis as well, identified by the Bullish wedge break out in EURAUD and the inverse head and shoulders pattern in the EURCAD daily charts.

At the time of the previous analysis posted, EURAUD was trading at 1.44798, while EURCAD was trading at 1.38061. At the moment, EURAUD closed Friday’s session at 1.49843 while EURCAD closed at 1.41451. In other words, since publishing the EURAUD and EURCAD report, the currencies gained 3.48% (or 504.5 pips) and 2.46% (or 339Pips) respectively.

While EURCAD rallied to reach the minimum projected objective to 1.41396, EURAUD is currently a few pips shy off the 1.51 projected target zone.

Going forward, as per the latest weekly CFTC CoT sentiment report, we notice that both the Aussie and the Canadian dollars remain well pressured to the downside. The CAD net shorts continue to build up in positions reaching $25 billion, the largest levels since March this year, while the Aussie net shorts surged to $16 billion. In comparison the Euro CoT sentiment was little changed, at $13.7 billion.

While we are led to believe that there could be further upside in store, we prefer to stay on the sidelines (at least with EURCAD which did manage to reach the minimum price objective), while we wait until EURAUD tests the 1.51 projected region of support.

EURCAD – Technical Outlook

After the inverse head and shoulders was formed, price action saw a quick rally and then a decline back to the neckline. Well supported near 1.375 region, EURCAD then promptly rallied back towards 1.414 region, the minimum projected targeted of the inverse head and shoulders. We could now expect some kind of a pullback on this rally. More importantly, we need to see 1.414 level being cleared as resistance and being tested for support. In the event of a successful test of support, new positions could be taken up in EURCAD which could be used to target the next level at 1.4538. The upside bias could be invalidated should we see 1.414 region being tested for resistance.

EURAUD – Technical Outlook

For EURAUD, the break out from the falling bullish wedge formed a short term resistance near 1.467. The break out from here saw a rally with price currently shy of a few pips from the 1.51 region of resistance. We expect an initial test to 1.51 pushing prices lower. We do anticipate a possible decline back to 1.467 which would be tested for support (previously broken resistance). The 1.467 offers a great level to add to position which will then see a possible break of 1.51 – 1.52 paving way towards the previous highs at 1.57.