EURCAD has sold off sharply in August, but it looks like the pair is prime for retracement back to an area of interest. Price could pull up to the broken support area at the 1.4400-1.4450 psychological levels, which are close to the 38.2% Fibonacci retracement level.

Stochastic is already in the overbought zone, indicating that selling pressure could return as soon as it crosses lower. For now, the oscillator is showing that a bit of buying momentum is left and that price could still reach the nearby Fib level.

Shorting at the 1.4400 handle with a stop at 1.4500 or higher could yield at least a 1:1 return on risk if one aims for the previous lows at 1.4250. Going for new lows could improve the reward ratio, but it would be prudent to move the stop to entry or trail it once price tests the previous lows.

The event risks for this trade are the upcoming ECB rate decision and the Canadian jobs release. For today, the BOC is set to make its monetary policy statement and no major changes are expected.

By Kate Curtis from Trader’s Way