Eurosceptic candidates gain lead in French polls

As crude oil nudged downwards to $50 per barrel, the Canadian dollar began to falter last week. The dairy trade dispute between the US and Canada also weakened the Canadian dollar. On the other hand, a 0.8% m-o-m rise in March inflation enabled the Euro dollar to rally against its rivals. Since April 17th, the EUR/CAD pair has gained 600 pips to reach a level of 1.4730. However, the facts provided below indicate that a correction could soon set in.

Referring to the dairy sector, Trump had recently stated that the protectionist policies of Canada are affecting the US farmers. The statement of Trump was squarely denied by David MacNaughton, Canada’s envoy to Washington.

It should be noted that that the value of dairy exports from Canada was only about C$211 million in 2015, while the total value of exports was about C$525 billion. So, the dispute will not affect the economy on a large scale.

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To cool down the overheated housing market, the Ontario province has imposed a 15% tax on foreign buyers. Apart from that, an expanded rent control measures have been announced as well.

On the basis of strong employment data, the currency strategist at UniCredit bank argues that the Canadian dollar would soon rally. The opinion is further strengthened by the Bank of Canada’s less dovish stance seen in the economic outlook report presented during the recent monetary policy meeting. In its report, the BoC has stated that it anticipates the economy to strengthen further and utilize the entire excess capacity by the first-half of 2018.

Furthermore, the BoC also revised up its fiscal 2017 GDP growth rate to 2.7%, from 2.1% issued in January.

In the case of Europe, the recent CPI data indicate that the inflation remains steady. However, it is not too strong to consider a rate hike. It is one of the main reasons for the ECB to postpone policy tightening, according to Paul Sirani, chief market analyst at Xtrade. The analyst also underlined that the normalization of the rates is also delayed by the uncertainty caused by the French election.

The first round of the French election is scheduled on April 23rd. A recent poll by Ipsos-Sopra Sterna indicates that any of the four candidates, including Jean-Luc Mélenchon representing the far-left, can move to the second round. The possibility of a second round battle between Mélenchon and Marine Le Pen, the eurosceptic candidates, has raised fears among investors. Thus, considering the above facts, we anticipate the EUR/CAD pair to decline in the week ahead.

As shown in the image below, the EUR/CAD pair is facing resistance at 1.4730. The stochastic oscillator has also formed a negative divergence with the price. So, technically, a downtrend can be anticipated in the EUR/CAD pair.

With an intention to gain from the EUR/CAD pair’s decline, a currency trader can establish a short position in the EUR/CAD pair at about 1.4730. To minimize losses, a stop loss order can be placed above 1.4880. The short position can be unwinded near 1.4230.

Similarly, a put option can be purchased by a binary trader to gain from the EUR/CAD pair’s downtrend. The option should be ideally purchased when the pair trades near 1.4730. The trader should also choose a date around May 1st as the expiry date for the contract.

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