How to Trade the EURCAD Currency Pair
The European Union (EU) is Canada’s third-largest trading partner after the United States and China. The free-trade agreement between the EU and Canada is known as The Comprehensive Economic and Trade Agreement (CETA) and is worth around €13 billion.
With such a high level of trade between the two countries, the EURCAD currency pair exhibits high levels of price movement that forex traders try to speculate on.
In this ‘How to Trade EURCAD’ article, we cover how the currency pair works, the tools that can help to identify EURCAD correlation and sentiment, as well as the current EURCAD forecast for buy or sell decisions.
Table of Contents
How does the EURCAD Exchange Rate Work?
The EURCAD exchange rate shows how much one euro is worth in Canadian dollars. For example, if the current EURCAD exchange rate was 1.3280, this means one EUR will buy you 1.3280 CAD.
Currency pairs are typically quoted with two prices. The left price is the bid price and the right price is the ask price. These prices consistently move up and down when the forex market is open 24 hours a day, 5 days a week.
When speculating a EURCAD buy or sell decision a trader will buy at the ask price and sell, or short, at the bid price. The difference between the bid price and the ask price is known as the spread and is one cost of trading the foreign exchange market.
Many forex traders use contracts for differences (CFDs) to trade currencies as these allow you to merely speculate on the price direction of an underlying asset without owning the physical asset. As such, this also allows traders the ability to speculate on rising and falling prices which means you can potentially profit from rising and falling currency prices.
CFDs also allow you to trade on margin. This means you can open a larger position using a smaller deposit which is held as margin. This leveraging effect amplifies both winning and losing trades.
You can learn more about the benefits and risks of CFDs in The CFD Trading Guide.
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EURCAD Investing Analysis Techniques
When trying to make a EURCAD buy or sell decision, there are a variety of analysis techniques available to traders. This can include:
- Technical analysis – the study of price charts to identify patterns of behaviour of buying and selling to participate in. This includes technical trading indicators, price action patterns and support and resistance levels.
- Fundamental analysis – the study of macroeconomic factors such as employment figures, inflation numbers and trade agreements.
- Sentiment analysis – the study of how other traders are positioned in the market to either ‘follow the crowd’ or look for overbought or oversold conditions.
- Correlation analysis – the study of how EURCAD is correlated to other markets to look for changes in market behaviour or to help with the overall risk management of a portfolio.
Another technique is to follow the EURCAD news flows and how that affects the overall pair. You can sharpen up your foreign exchange trading and analytical skills with the FREE Forex 101 trading course below.
EURCAD Technical Analysis
Technical analysis is a popular form of analysing the market. It includes the study of technical trading indicators and chart patterns to identify patterns of buying and selling to participate. EURCAD technical analysis generally falls into three categories: technical indicators, chart patterns and price action patterns.
Technical trading indicators analyse price data mathematically to help traders learn more about the price behaviour of a market. Technical trading indicators fall into several categories:
- Trend. These indicators help determine what the overall trend of the market is and whether buyers or sellers are in control. Trend indicators include moving averages, Ichimoku clouds, the parabolic SAR and others.
- Oscillators. These indicators analyse price data into a high and low format to help identify overbought and oversold conditions. Oscillators include the stochastic oscillator, MACD and many others.
Below is a daily price chart of EURCAD with the 100-period exponential moving average (100 EMA) plotted in green and the stochastic oscillator at the bottom of the chart.
When the price has remained below the green 100 EMA line it is generally considered to be a bearish sign where in the long-term, sellers are in control of the market. While the price has tried to break above the 100 EMA buyers failed to stay above it, also giving clues that sellers are more dominant during that period of time.
The stochastic oscillator indicator provides overbought and oversold readings. The blue vertical lines highlight some occasions where the oscillator has been overbought above the 80 indicator level.
On some of the occasions – not all of them – the price fell and continued its overall downtrend. Traders will use a combination of these technical indicators to help identify potential trading opportunities.
But as nothing works 100% of the time, there will be winning and losing trades. Risk management is an essential component of trading the market successfully. It is important to keep your risk low and always use a stop loss.
Admirals provide its clients with the Technical Insight Lookup indicator which will find technical analysis events for you on thousands of markets including EURCAD.
The Technical Insight Lookup indicator can be found in the Premium Analytics section. This indicator finds actionable technical analysis events on EURCAD and thousands of other markets.
This can save a lot of time for forex traders but also help to learn more about how technical analysis works. You can click on any of the live technical events and an explanation box will appear. This could be a useful tool to help supercharge your trading.
EURCAD Fundamental Analysis
Fundamental analysis involves the study of macroeconomic data and news announcements. This includes economic data such as interest rates, inflation, employment numbers and more. The EURCAD exchange rate has trended lower for much of 2022.
This was due to a variety of macroeconomic factors. For example, the Russia-Ukraine war caused an energy crisis in Europe which impacted economic growth influencing investors to pull capital from the region and therefore out of the currency.
At the same time, oil prices were rising higher. As Canada produces more natural gas and oil than they use, they export a lot to the United States. Therefore, higher oil prices can sometimes lead to a stronger Canadian dollar.
During this period, the European Central Bank kept rates at record lows while the Bank of Canada started increasing interest rates in March 2022. This put further pressure on EURCAD as investors converted euros into Canadian dollars to capitalise on the higher interest rate.
However, in early September, the European Central Bank increased interest rates for the first time in eleven years. This caused a small rally in the EURCAD exchange rate. You can keep up to date with economic news announcements with the Admirals Forex Calendar.
Trading EURCAD Sentiment
The sentiment towards a certain market can be useful in helping to identify whether there are more bullish or bearish investors. The Admirals MetaTrader Supreme Edition – a free-to-download plugin – allows you to access sentiment indicators.
The above screenshot of the Sentiment Trader window available from the Supreme Edition plugin shows the overall sentiment between buyers and sellers across different currencies. At the time of the screenshot, the sentiment regarding EURCAD was fairly balanced.
However, there are much more extreme sentiment readers in AUDCAD and EURGBP. These types of sentiment readings can either be used to trade ‘with the crowd’ or as a reversal indicator when readings have gone to extreme levels.
If there are a lot of buyers or sellers in a market, then at some point there will be some profit taken from these players which can cause a large reversal in the market. Traders would never use sentiment readings in isolation but along with other technical tools or fundamental analysis.
Download the MetaTrader Supreme Edition plugin for FREE and test out the Sentiment Trader indicator yourself.
Trading EURCAD Correlation
Markets can often exhibit a high level of correlation with one another. Without knowing, traders may end up taking positions in several different markets that are highly correlated and move in the same direction, increasing the risk of their portfolio.
Understanding the correlation of the market you are trading can be a very effective risk management tool. From the Admirals MetaTrader Supreme Edition plugin, you can access the Correlation Matrix indicator.
The screenshot above shows the EURCAD correlation to other markets at the time.
- Red box = strong correlation
- Orange box = medium correlation
- Blue box = weak correlation
- Green box = no correlation
It may be surprising to see that at the time of the screenshot there was a very high correlation between EURCAD and USDJPY. The reading of –95 means that there is a very high negative correlation between the two currency pairs. This means that when one is going down the other is going up.
Many traders may end up trading different markets without the awareness of correlated a market may be. This is an important risk management tool to avoid overexposing yourself to a particular direction of the market.
Open a demo account today and test out the Correlation Matrix indicator for yourself.
When deciding on a EURCAD buy or sell decision, you can analyse a variety of tools discussed in this article so far. Another popular way to determine a EURCAD forecast is to analyse the support and resistance levels of a market.
Below is the long-term, monthly price of EURCAD (euro vs Canadian dollar).
The EURCAD support and resistance lines drawn on the chart above (thick black horizontal lines) show a long-term trading range that has developed on the currency pair since 1999. Within this long-term range, the EURCAD support and resistance lines also show an ascending triangle formation formed between 2011 and 2021.
The price broke below the ascending support line of this triangle pattern in September 2021 and has been in a downtrend ever since. Traders may look for EURCAD to try and reach the lower support line of the trading range of around 1.2430 in the very long term.
This type of analysis can also be replicated on lower timeframe charts as well.
Stay up to date with the latest market movements and analysis techniques by registering for your free spot in the Admirals live trading webinars which are hosted by experienced traders three times a week.
FAQs on Trading EURCAD
Is EURCAD Buy or Sell?
In late 2021, the EURCAD exchange rate broke a major ascending support line. It has been in a downtrend ever since and may be working its way toward the lower support line of a long-term trading range developed since 1999, but trends do change over time.
Is EURCAD a good pair to trade?
EURCAD offers a lot of volatility of forex traders. However, this can be good and bad. Traders who are able to manage risk properly may be able to capitalise on EURCAD volatility. However, higher volatility can also lead to more losses if not risk-managed correctly.
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