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After a strong bearish run in the past couple of weeks, EUR/CAD seems to have finally run out of steam. Is the bounce an opportunity to short once again?

Fib Pullback on EUR/CAD

EUR/CAD 4-Hour Forex Chart
EUR/CAD 4-Hour Forex Chart

Keeping it simple with this week’s trade idea, this time on EUR/CAD after it broke a range between 1.4900 – 1.5150 that goes back to the beginning of the year. The Canadian dollar has been on a pretty solid run against the majors thanks to relatively upbeat economic updates (most notably a surprisingly strong employment environment in the first half of 2019), while economic conditions in Europe have deteriorated enough that speculation has grown that the ECB will bring back a significant level of stimulus. I don’t think these are themes that will turn around anytime soon, so short-to-medium, I’m sticking with the overall bearish bias.

Looking forward, we’ve got more economic updates to potential maintain the recent pickup in volatility, with Canadian inflation and the ECB monetary policy statement coming within the next few weeks. The ECB event is likely to be the main event for the pair for the remainder of the month, and again, with the data weakening in Europe, odds are better than even we’ll get some sort of stimulus announcement then.

With all of that said, I’m looking to short EUR/CAD, but doing so conservatively given the strong move lower already seen and with the ECB monetary policy statement coming soon. I’ll use a scaling in strategy, starting at the 38% Fibonacci retracment area up to the 61% area. My stop will be the weekly ATR from my highest short levels, and my target will be the next major area of support that saw a big time reversal to the upside back in 2017.  Here’s what I’m going to do:

Short half position EUR/CAD at 1.4800, max stop at 1.5075, max target at 1.4500 with 0.50% risk

Short half position EUR/CAD at 1.4900, max stop at 1.5075, max target at 1.4500 with 0.50% risk

I’ll be risking 1.00% of my account if both positions are triggered, and my potential return-on-risk is about 1.6:1 for now.  But I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on the latest data and geopolitical developments and how traders react to them.

Stay tuned for updates and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.