EURCAD: Focusing on the Fundies

Trade Idea: 2010-05-10 23:40

PoD Chart

Matching the weak with the strong. That’s what’s this trade is all about. With that said, I’m looking to buy one of the strongest performing currencies this year, the Loonie, and sell one of the weakest, the euro.

While I was reading Pip Diddy‘s daily economic roundup, I realized that the euro and the pound seem to be the weakest among the pack while the Canadian dollar looks relatively strong – fundamentally speaking, of course.

I think, although the proposed massive bailout plan enabled the euro to pull up from last week’s dive, debt problems are still rampant in the euro zone and it may take a long while before the new rescue package gets approved. I seem to recall a tiny little Greek bailout package taking months and several conflicts in between before getting the thumbs-up sign!

Meanwhile, Canada’s labor and housing market are both flexing their muscles recently. Canada boasted of another increase in hiring for the month of April, bringing their unemployment rate down a notch from 8.2% to 8.1%. Yesterday, they printed a 1.3% increase in housing starts for the same month. With everything that’s going right for the Canadian economy, I wouldn’t be surprised if the Bank of Canada hiked rates soon.

For the meantime, the euro could still be on a high now that there is new hope for the euro zone. This could allow the EURCAD to climb to the top of the channel…

Over the past couple of weeks, I’ve noticed that the EURCAD has been channeling lower and lower. It looks like the pair is at the bottom of the channel and could be breaking out, but given the recent developments of the EUIMF bailout package, I’m going to be have to a little bit more patient on this one. I just don’t have any confidence in going long euro at this moment.

You might be thinking, “Why doesn’t Cyclopip short it now? It looks like its breaking – is he blind or something?!” No, I’m not blind – I still have one good eye ya know!

So, before deciding my entry, stop and targets, I’m going to see if a “relief retracement” back to the top of the channel is in play. Yes, this is more than 300 pips away, but given all the wild swings the past week or so, I don’t think this is totally out of the question. Just look at the EURUSD – that sucker just moved 600 pips over two days!

Now, if the pair breaks lower… then so much for that! Stay tuned!