The Euro traded sharply lower during Monday’s Asian session as a result of the Italian Constitutional Referendum, and the defeat of the pro-Euro Prime Minister Matteo Renzi on Sunday. This selling pressure soon subsided, and as investors shrugged off the referendum result, the EUR/USD soon recovered all of its losses and ended off the day with an impressive bullish engulfing candle. Here is a daily chart of the EUR/USD:

EUR/USD Daily Chart

Monday’s aggressive bullish candle is certainly a game changer. This firm close above the 20-EMA is the first in many weeks. I didn’t trade the Euro on Monday but I would have liked to see a continuation of the bearish trend, especially with Friday’s red doji candle just below the 20-day exponential moving average. Currency trading is all about adapting to market conditions, and at the moment we can’t ignore this powerful rise in the EUR/USD. The larger picture of this pair is certainly still bearish, and the various risks which threaten the Eurozone have definitely not abated. Perhaps Italy would not be able to leave the European Union easily, but the Netherlands and perhaps some other countries could.

Swing trading the EUR/USD doesn’t appear very attractive right now. To take on a short position at the moment could be very risky, especially when we consider the tremendous force of this upward move on Monday. Buying this pair could also be problematic because this would be fighting the prevalent downtrend. Scalpers and day traders could possibly make some profits from intraday buy setups on Tuesday, but this is not the ideal setup for long trades. Putting forth intraday trades in the direction of the larger trend stacks the odds in your favor and increases your chances of making some profits.

USD/CAD

The USD/CAD has declined aggressively in the last few days. The very strong oil price caused a healthy bid in the Canadian dollar which, together with a weak US dollar, contributed to this sharp decline. The longer-term outlook is still bullish, but at the moment some strong selling is dominating the smaller timeframes. Look at this 4-hour chart:

USD/CAD 4-Hour Chart

Here you can see that the exchange rate has already spent a lot of time below the 20-EMA. This is a warning to bullish market players to stand aside for now. The bears need to be cautious as well because the price is approaching channel support on the weekly chart which might be where the big boys will step in with renewed buying appetite. Look at this weekly chart:

USD/CAD Weekly Chart

At the moment the 20-week exponential moving average is still holding as support. On the lower timeframes this correction looks massive, but looking at this weekly chart brings it into perspective. I have to say, I wouldn’t be surprised if the price reached the bottom of the channel in the next few weeks, neither would I be surprised if the pair resumed its bullish trend soon. Let’s move to a daily chart:

USD/CAD Daily Chart

Before I say more about this setup, let’s first zoom in on this chart a bit:

USD/CAD Daily Chart

Here we can clearly see how the price penetrated this blue support zone but rejected off of it and closed above it. Although this is a relatively small rejection, it still carries some significance because of the important level it rejected off. This could be a turning point for the pair before moving up again. Of course, it would be very aggressive to open long positions at this level and time, but it could be very rewarding as well. Monday’s doji-like candle supports the idea of the possibility of a reversal at, or near this level.

There is some important economic data out of Canada on Tuesday – the Ivey Purchasing Managers Index number, which will be released at 15:00 GMT.

AUD/USD

I’m not very comfortable with Monday’s upward movement in this pair. On the lower timeframes, this rise is quite impulsive. Look at this hourly chart:

AUD/USD Hourly Chart

If we look at a daily chart, it looks more bear-friendly, especially because Monday’s candle rejected off the 20-day exponential moving average and closed below it. Look at the following chart:

AUD/USD Daily Chart

If you’re trading the Aussie, remember that the RBA (Reserve Bank of Australia) have their interest rate decision and rate statement on Tuesday at 03:30 GMT. This could cause considerable volatility, so be mindful of this event.

Profitable trading!