Euro strengthens on improvement in business sentiment

The Euro dollar became jittery at the end of the first week of February when the ECB President Mario Draghi underplayed the recent rise in the headline inflation in the European Union and justified the need for the further quantitative easing measures including the current bond purchases. While the Euro dollar was facing the onslaught from sellers, the Canadian dollar got a boost from the rise in crude price to $54.30.

The EUR/CAD pair hit a low of 1.3780 in mid-February. Since then, the pair has recovered marginally to trade at 1.3860 as of yesterday. Considering the facts provided underneath, we anticipate the cross to rally further in the days to come.

In Germany, the Institute of Economic Research reported an improvement in the business sentiment index reading to 111 in February, from 109.9 in the prior month, and higher than analysts’ expectation of 109.6. It is the highest reported level since August 2011. The surveyed companies (about 7,000) also expressed optimism about the months ahead.

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Similarly, the Markit Economics’ flash Eurozone PMI (Purchase Managers Index) reading increased to 55.5 in February, from 55.2 in the earlier month, and above market’s anticipation of a reading of 55. The reading indicates that the pace of economic expansion in the Eurozone has reached a six year high. Furthermore, the creation of new jobs is currently at nine and a half year high.

In the meanwhile, Statistics Canada reported a decline in the retail sales to 0.5% m-o-m in December, from an upwardly revised 0.3% growth in November. Nine of the eleven subsectors, representing 82% of retail trade, reported a fall in retail sales. Analysts had expected retail sales to grow 0.1% in December. Excluding automobiles, core retail sales fell 0.3% in December. Thus, considering the economic data in the Euro zone and Canada, we can safely argue that the EUR/CAD would see a bullish reversal soon.

The EUR/CAD pair is moving along the ascending trend line, as shown in the price chart below. The increasing upward thrust is also confirmed by the rising force index. So, we can expect the currency pair to move towards the next resistance level of 1.3980.

A currency trader should establish a long position in the EUR/CAD pair near 1.3860 to benefit from the forecasted uptrend. To limit losses, a stop loss order can be placed below 1.3780. The profit for the trade can be booked near 1.3980.

By purchasing a high or above option, a binary trader can gain from the probable uptrend in the EUR/CAD pair. The trader should make a bet only if the pair is trading near 1.3860. The ideal expiry date for the contract would be March 3rd .

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