The rising trendline continues to be strong in EUR/CAD, so why not take a shot at it as it’s about to be retested? Will a retest draw in forex buyers again?
As we can see in the four hour chart above of EUR/CAD, the technical argument is pretty clear: up, up and away! That rising trendline has actually been going since April 2015, so there’s a good chance that a return to the trendline will be taken as an opportunity for buyers to hop back in.
The fundamental argument for a long position has been, and continues to mainly be, slumping oil prices and weakening GDP growth in Canada. We also got a recent boost in the euro on economic data that wasn’t so bad and the idea that more quantitative easing is not in the cards for now from the ECB. I think risk sentiment has been a big influence on the currency markets recently as well (fear has been driving risk aversion behavior lately), and I think is like to continue which likely means more pressure on the commodity dollars.
Overall, I think the technicals are strong and that the fundamentals still favor a bullish trend, but the recent moves higher may be overdone, so I’m looking for a pullback to enter with a small position. I look to go long at the major psychological level around the rising trenline/200SMA, with a wide stop of around one weekly ATR, and a target of the recent swing high we saw around the end of August. Here’s what I’m doing:
Long half position at 1.4900, stop at 1.4550, max profit target at 1.5500
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.71:1. 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!