EURCAD Breaks to 5 mth Highs

The Canadian dollar is 2^nd worst performing currency year-to-date ahead of the kiwi among the top-traded 11 currencies. Selling the loonie against almost any currency over the last 2 weeks, 6 weeks or 3 months would have been a profitable trade. In early June, our Premium Insights made the case for buying EURCAD at 1.3850 on purely a technical rationale -- inverse head-&-shoulder backed by a supporting neckline-- coinciding with the 200-week MA and a trendline from the April low. Today, we exited the trade at 1.4335.

Fundamentally, the 20-bp jump in the two and ten-year spread between German and Canada bond yields has also helped propelled the pair high and was used as a foundation in our June 5^th and 19^th Premium notes.

Immediate resistance now stands at the 100-week MA, which coincidentally matches the 100-month MA around 1.4330.  The argument for further gains rests on persistent improvement in core Eurozone nations alongside the fading of immediate Greece risks.  

Renewed risks of deflation emerging from falling oil could well drag euro lower on weaker inflation, but the loonie is more likely to sustain greater losses. Does it make sense to re-embark on the trade for higher gains towards 1.4700s, or will the 1.4500 resistance becomes the ultimate barrier? Stay tuned for a new trade on this pair tomorrow.

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