Despite the prevailingly pessimistic outlook on the prospects for a solid recovery in the Euro Area, the euro continues to be flexing muscles. To read more about the current short term and long term outlook on the single currency, check out our previous analysis of the EURUSD.
Overall economic sentiment in the Eurozone remains subdued despite ECB's increasingly, albeit at a slow pace, more hawkish stance. Earlier today, the ZEW institute revealed that the index fell below market forecasts, exacerbating the struggles of the euro in the short term. Nevertheless, the underlying bullish bias should not be overlooked.
The euro is currently retreating against the Canadian dollar, as shown on the 3H chart above. The price action is consolidating between the 100-day MA (in blue), serving as a floating support, and the 38.2 per cent Fibonacci retracement level at 1.44308.
This consolidation is taking the shape of a Falling Wedge, which is a type of pattern that, when found in an uptrend, tends to signify a temporary break in the underlying trend. The uptrend itself was commenced following the completion of the major Double Bottom pattern.
That is why the next rebound from the 38.2 per cent Fibonacci is likely to signify the continuation of the bullish trend, very probably heading further up north. On the unlikely condition that the correction was to probe lower before this could happen, the price action could find the necessary support from the 61.8 per cent Fibonacci at 1.43043, converging with the 200-day MA (in orange).
The index was revised down to 48.6 points in January from the 49.4 index points recorded a month prior and below market forecasts of 54.4 points. The general outlook continues to be subdued, mostly owing to the escalating tensions between Russia and Ukraine, exacerbating Europe's energy crisis as the price of crude rallies.