EUR/USD, USD/CAD: A fresh look at setups for clues on what comes next

Hot Canadian inflation report sees USD/CAD sink to known support level
EUR/USD whipsawed by geopolitical headlines; near-term bullish bias retained

Overview

Canada’s inflation report was a little too hot to handle, helping the short USD/CAD setup suggested on Tuesday reach its target. Meanwhile, the EUR/USD long setup’s conditions weren’t met, though a bullish pin candle hints at potential upside ahead.

With a quiet macro calendar, we revisit USD/CAD and EUR/USD trade setups to evaluate what could happen next.

Inflation dents BoC follow-up 50 odds

Canada’s inflation report delivered a clear upside surprise, significantly reducing the odds of another 50bps hike from the Bank of Canada next month. Headline inflation rose to 2%, above the 1.9% forecast, while core inflation climbed to 2.55%, exceeding the expected 2.4% and moving further away from the BoC’s end-2024 forecast of 2.3%.

Source: TradingView

Arguably, traders could have reacted more to the data, if domestic factors were in the driving seat. But they’re not. U.S. rate expectations and Treasury yields remain the dominant market drivers, with USD/CAD’s response echoing moves seen in the Kiwi and Aussie dollars.

With the report in the rearview mirror, that’s what traders should be paying attention to when evaluating USD/CAD setups. It’s also been strongly inversely correlated with Hang Seng futures recently, hinting China sentiment is something to watch, especially regarding proposed US tariffs.

Source: TradingView

Not that the USD/CAD short setup has reached its target of 1.3959, it’s time to look at fresh trades involving the pair. From a momentum perspective, the picture has turned bearish with RSI (14) breaking its uptrend while MACD has crossed over from above, confirming the signal. Selling rallies is favoured in the near-term.

However, to get excited about an extended bearish unwind, it would be preferable to see the price push below 1.3959 and hold there, allowing for shorts to be set beneath with a tight stop above for protection.

There’s little to speak of until you get towards 1.3825, the double-bottom of early November. There’s also 1.3815, a minor level that acted as support and resistance in October. They are two potential targets.

EUR/USD whipsawed by headlines; bullish bias retained

The EUR/USD long setup tied to a morning star pattern wasn’t triggered, as the price failed to break and hold above 1.0600 during the session. Instead, geopolitical headlines caused a knee-jerk selloff before a sharp reversal toward the close.

The bullish pin candle that bottomed just ahead of a known support zone hints that downside may be difficult near-term without a major left-tail-type event. As such, the same initial setup remains in play.

Source: TradingView

If we were to see EUR/USD push and hold above 1.0600, longs could be established above with a tight stop below for protection. It’s already had a look in Asia but it’s unlikely we’ll see a definitive break in this time zone; that’s more likely to be a European session story.

1.0668 is the first target with a break above that level opening the path for a potential push towards 1.0700, 1.0800 or 1.0832, three levels the price did some work either side of during the prolonged downside flush of November.

The signals from RSI (14) and MACD are mixed, although it looks like the latter may soon crossover from below, confirming the bullish signal from the former.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.