By James Hyerczyk
The Euro has been surging to the upside since late July when European Central Bank President Mario Draghi vowed to do “whatever it takes” to preserve the Euro. While most of the attention has been on the Euro’s move versus the U.S. Dollar, it has also posted substantial gains against the Canadian Dollar.
The Euro’s move versus the Greenback was triggered by Draghi’s comment, but fueled by the Fed’s latest round of quantitative easing. Since reaching a top at 1.3172 shortly after the Fed’s move, the Euro experienced a short-term break to 1.2803 while concerns were raised about Spain.
This week, strong speculation that Spain was getting ready to make a formal request for a bailout by the European Union, triggered another surge to the upside that has the EUR/USD poised to continue the move which began in July and stopped in mid-September.
Technically, the EUR/USD is in an uptrend. A trade through the last swing top at 1.3172 will reaffirm the trend. A new main bottom has formed at 1.2803. A trade through this price level will turn the main trend to down.
Since bottoming on July 24 at 1.2042, the EUR/USD has walked up a weekly Gann angle moving at a pace of .008 per week. This angle which has provided both strength and direction is at 1.2562. Holding above this angle will be a sign of strength while a close under this angle will indicate that the uptrend is weakening.
Standing in the way of an all out rally is 50% of the 1.4247 to 1.2042 range. This level is at 1.3157. A move through this level then the main top should trigger an acceleration to the Fibonacci level at 1.3420. Another main range is 1.4940 to 1.2042. The 50% level of this range is 1.3491. This is close enough to the previously mentioned Fibonacci level to call 1.3420 to 1.3491 a possible resistance cluster.
Besides the retracement level cluster, a downtrending Gann angle from the 1.4247 top is a possible upside target along with a downtrending Gann angle from the 1.4940 top. These angles are at 1.3207 and 1.3400 respectively. Combining this with the 50% retracement level makes 1.3400 to 1.3420 another potential resistance cluster.
This week, the EUR/CAD changed its main trend to up on the weekly chart when it broke out above the previous top at 1.2807. This move also created a new main bottom at 1.2575. A trade through this level will turn the main trend to down. Fundamentally, the Euro was rallying over optimism that Spain was going to ask for financial aid. The Canadian Dollar on the other hand traded lower on speculation that the Bank of Canada would lower its economic growth forecast.
Regaining an uptrending angle at 1.2128 is another sign of strength, but the true test of strength will occur when the EUR/CAD breaks through the downtrending Gann angle at 1.2938. A move through this angle could trigger a further rally into a major retracement zone at 1.3253 to 1.3518.
When the news is good for the Euro, try to look beyond the Euro’s relationship to the dollar since it may also mean it is strengthening against other currencies such as the Australian Dollar, British Pound, Japanese Yen and New Zealand Dollar.