Forex Trade Idea: 2014-11-25
I spotted a potential broken support-turned-resistance play on EUR/CAD that looks pretty interesting with Canadian data starting to turn positive.
On the four hour chart above, we can see that the 1.4050 level held as strong support in October and in the beginning of November, but evening broke last week on the bearish comments from ECB President Mario Draghi on potential quantitative easing.
The market has bounced this week, retesting that broken support level and it looks like the bears have defended it pretty well as EUR/CAD remains below the 1.4050 area. With sellers holding control for now, I’ve decided to short, not only on the potential for more stimulus from the ECB, but also on the recent positive economic reads from Canada that seems to have the Loonie deviating away from the weakness we’re seeing from the other comdolls.
With a break of the major psychological handle of 1.4000, I’ve decided to short at market with a wide stop of one weekly ATR. I don’t really have a hard target because there is potential for room to run, but my initial target will be the next big psychological level that acted as a strong area of interest over the past few years. Here’s what I’m doing:
Short full position at market (1.3993), stop at 1.4240, profit target at 1.3500
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2:1. This is the same trade as my homegirl Happypip who is shorting it with much tighter exit points, but I like this as a longer-term play that could have a big run lower. Just wanted to show that you can play the same idea but in different ways because there is more than one way to skin a cat, right?
Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!