EUR/CAD Charges Towards Cluster Resistance, Bullish Breakout in Play

EUR/CAD KEY POINTS:

  • EUR/CAD has begun to rebound in recent days after briefly setting a new multi-year low last week
  • The pair appears to be moving tentatively towards a major resistance zone near 1.3285
  • Traders should watch for a topside breakout, as this event could trigger the next leg higher in the exchange rate

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EUR/CAD (Euro – Canadian Dollar) has been trapped in a major downtrend since the beginning of the year, setting consistent lower highs and lower lows during its journey south. Last week, the pair briefly made a multi-year low near 1.2875, but has managed to bounce from those levels, with the exchange rate now threatening to climb decisively above the 50-day simple moving average resting at 1.3175 for the first time since late June.

In the big picture and grand scheme of things, the dominant bias still appears bearish, but it is possible that a meaningful short-term rebound could be gestating. For EUR/CAD, reclaiming the 50-day SMA should be seen as a constructive technical development that could create the right conditions for the recovery seen in recent days to continue, a situation that could push the exchange rate towards a pivotal region slightly below the 1.3300 handle. This is where things could get interesting for tactical and counter-trend traders.

Looking at the daily chart, cluster resistance seems to be located near 1.3285. This area of high technical significance, where a descending trendline extended off the February high converges with the 23.6% Fibonacci retracement of the 2022 decline, has halted advances a few times over the past couple of months, giving way to an eventual pullback.

Should EUR/CAD make headway to the upside and retest 1.3285 in the coming days, an intense battle between bulls and bears for control of the market is likely to unfold. While failure to breach this ceiling could skew prices to the downside, a topside breakout, accompanied by increased volume, could produce a more exciting reaction and a larger move, potentially sparking the next leg higher as bearish positions are closed and new buyers enter the market.

In the bullish breakout scenario, EUR/CAD could gain momentum to challenge the psychological 1.3400 level, the next technical resistance in play. On further strength, the focus shifts to 1.3541, the 38.2% Fibonacci retracement of this year’s sell-off, though it is too soon to be extremely buoyant on the common currency’s prospects; one day at a time for now.

EUR/CAD TECHNICAL CHART

EUR/CAR Chart Prepared Using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX

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