Technical Analysis – EURCAD builds uptrend; overbought signals strengthen

EURCAD has rallied by almost 10% since the plunge to a nine-and-a-half year low of 1.2874 in August, retracing more than half of its 2022 downtrend.

On Tuesday the price accelerated above a bullish channel to mark a new higher high at 1.4125, but it soon lost momentum to close below the 61.8% Fibonacci retracement of the 2022 downtrend. 

With the stochastics showing bearish divergence and the RSI having reached its 2020 top in the overbought territory, a downside correction looks increasingly likely. That said, the golden cross between the 50- and 200-day simple moving averages (SMAs), which is the first posted since 2020, suggests that a potential downside correction might be part of the ongoing uptrend.

A sustainable move above 1.4074 could reduce negative risks, prompting an advance towards the 78.6% Fibonacci of 1.4257. Running higher, the bulls will need to overcome the 1.4450 bar to secure an extension up to the 2022 high of 1.4433.

Alternatively, a move back into the channel (1.3980) may dampen market sentiment, bringing the 20-day simple moving average (SMA) and the 50% Fibonacci of 1.3754 next into view. Even lower, the bears will push for a break below the channel at 1.3545. This is where the 50-day SMA and the 38.2% Fibonacci are placed too. Hence, failure to pivot here, and more importantly around the 200-day SMA at 1.3480, could see the price diving straight to the 23.6% Fibonacci of 1.3290.

In brief, EURCAD is trading bullish, but some caution is required as the room for improvement seems to be narrowing according to technical signals.

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