Watching EUR/CAD for a Short Play

Forex Trade Idea: 2014-05-23

The weekend is almost here so I won’t be initiating new positions, but I wanted to share a setup I may take next week in EUR/CAD.

EUR/CAD 4 Hour Forex Chart

EUR/CAD 4 Hour Forex Chart

EUR/CAD has been on a pretty sweet uptrend since hitting a low of 1.2200 back in August 2013, but recent price action has indicated we may be seeing a shift in sentiment on the pair.

Technically, price action has created what could be interpreted as a head and shoulders pattern, with the market currently testing the horizontal neckline (an area also coincides with the rising lows over the past year). This pattern could partially be explained by the recent bearish sentiment shift on the euro thanks to ECB rate cut speculation, but the Loonie has actually been having a great month against the majors, with exception against the recent bullish shift in Japanese Yen.  This is odd because of the mostly weak data Canada has been posting all May.

My guess is that since the Loonie does tend to trade along with the U.S. (its largest trading partner), it’s moving with recent positive data on the U.S. economy.  And/or it can be trading along with crude oil, which his having good month as WTI crude is up about 5% from 97.00 to test 102.00 in May.

Whatever the case may be, I’m looking to go with the momentum IF EUR/CAD sustains below 1.4900 – 1.5000 area next week.  And if this reversal lower is the real deal, then 1.4450 – 1.4500 is an area to watch as the next support area.

For now I’ll be holding off on entering any new positions right now, but I’ll keep my eye on this pair and my EUR/JPY short orders open at 140.00.

Do you think the technicals will bring in support or will it be a break lower for EUR/CAD? Leave your comments below!

  • traderdom107

    In my opinion it may be a bad idea to hold off on taking short positions, given the number of confirmations technically in this pair recently. My own analysis has lead me to short this pair already, and I’m sitting at an 100pip gain currently.

    Today we broke below the previous support of 1.4830 and the pair looks technically poised for further downside. Fundamentally as you’ve mentioned it looks bearish for the Euro. Also, with the European elections taking place today and yesterday, and with results due at the weekend, Anti-EU parties look set to make substantial gains and this may weaken the Euro a lot. The Canadian price index today came out ever so slightly above expectations and this further removes the BoC’s scope for easing.

    I believe the head and shoulders pattern looks set to continue and we are possibly days away from seeing a neckline break with a downside move of at least 100-200 pips short term but likely more. Given the technical and fundamental confirmations, I believe the risk/reward profile heavily favours shorting this pair, and I will continue to hold my position with a stop loss of just above 1.5100 which I will reduce to 1.5000 if we make another substantial break downwards.

    All the best with your trading,

    [Disclaimer: I’m short EUR/CAD from 1.4920]

  • cyclopip

    Yeah, the weak IFO data certainly made the likelihood of a pullback much tougher, so I may have to switch to a breakout strategy this upcoming week. Thanks for you thoughts Dom as it gave many traders, including myself more insight to the euro story.