Resistance Rejection Along with Divergence Adds Weight to a Bearish Correction

Forex

Economic

Summary:

After testing this resistance, price rejected to the downside. If this level fails to break to the upside, we could see a renewal of downward pressure toward the local support zone at 1.6015.

SELL EURCAD

EXP

PENDING

1.61900

Entry Price

1.60150

1.62800

1.61655 +0.00035 +0.02%

Pips

PENDING

1.60150

Exit Price

1.61900

Entry Price

1.62800

German consumption data surprised to the downside in June. Retail sales posted a 1.1% monthly decline, widening past the 0.5% drop expected by the market and reversing part of the revised 1.2% gain observed in May. On a year-over-year basis, sales fell by 0.2%, pulling back from the 2.1% growth recorded the previous month and reflecting a moderation in household spending.

However, manufacturing activity offered a more encouraging signal. The S&P Global Manufacturing PMI for Germany rose to 52.2 points in July from 50.3 in June, reaching its highest level in four months and pointing to a sturdier recovery in the industrial sector. Improvement was also noted across the broader Eurozone, where the manufacturing PMI advanced to 51.9 from 51.4, recording the strongest expansion in factory activity since April.

On the monetary policy front, European Central Bank (ECB) Governing Council member Peter Kazimir maintained a distinctly hawkish tone. The Slovak official reiterated that at least one additional rate hike will likely be required to prevent inflationary pressures from spreading through second-round effects. Furthermore, he warned that a deterioration in the inflation outlook could justify a tighter monetary stance than markets currently price in.

Meanwhile, macroeconomic data continued to show favorable developments for the region. The Eurozone economy grew 0.4% quarter-over-quarter during the second quarter, topping both market expectations and the contraction recorded in the prior period. On an annual basis, GDP advanced by 1.0%, reflecting a significant acceleration in economic activity.

In geopolitics, uncertainty persists surrounding relations between the United States and Iran. Over the weekend, President Donald Trump stated that he had canceled a planned military operation against Iran and suggested that negotiations could resume. However, Iranian authorities denied the existence of direct talks with Washington, generating mixed signals that continue to weigh on market sentiment and keep geopolitical risks elevated.

In Canada, the trade outlook showed a slight improvement. U.S. officials adopted a more conciliatory tone regarding recent tariff measures, while U.S. Trade Representative Jamieson Greer noted that actions implemented by Washington should not compromise long-term bilateral relations. Additionally, he left open the possibility of reaching a broader trade deal before year-end, helping reduce some market uncertainty.

At the same time, Canadian inflation moderated more than expected in June. Key core measures came in below the Bank of Canada's (BoC) 2% target, reinforcing expectations that the central bank will maintain a cautious stance for an extended period. As a consequence, investors have scaled back bets on future rate hikes, limiting monetary support for the Canadian dollar in the short term. Resistance Rejection Along with Divergence Adds Weight to a Bearish Correction_1

Resistance Rejection Along with Divergence Adds Weight to a Bearish Correction_1

Technical Analysis

EURCAD recently reached the resistance level at 1.6193, levels not touched since July 10. For now, after testing this resistance, price rejected to the downside. If this level fails to break to the upside, we could see a renewal of downward pressure toward the local support zone at 1.6015. Meanwhile, the 100 and 200-period moving averages sit at 1.6082 and 1.6141; a close below these levels could accelerate the move lower, whereas a solid breakout to the upside would invalidate the bearish setup.

Looking at the oscillators, the RSI recently reached the 72 level, briefly entering overbought territory. However, the crucial factor here is the hidden divergence price has formed relative to the local peak reached at 1.6271; price is now considerably lower while showing higher RSI readings, indicating that bullish momentum is fading rapidly. Meanwhile, the MACD has just completed a bearish crossover. If the histogram begins to gain depth, the downward move could accelerate, though it should be noted that the signal lines remain entrenched in bullish territory, meaning consolidation may be needed for a more extended downward move to unfold.

Trading Recommendations

Trading direction: Sell

Entry price: 1.6190

Target price: 1.6015

Stop loss: 1.6280

Validity: Aug 14, 2026 15:00:00

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Resistance Rejection Along with Divergence Adds Weight to a Bearish Correction

Technical Analysis

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