Looking to take a shot on EUR/CAD this week after a textbook technical setup developed on the swing charts and ahead of top tier catalysts.
EUR/CAD Triangle Break & Retest?
On the four hour chart above, we can see an ascending triangle formation that lead to an upside break of strong resistance around the 1.5425 handle that turned away the bears in June.
The momentum comes from a likely combination of bearish feelings towards the Loonie as the possibility rises of oil prices to pull back (Oil Falls on Signs OPEC+ Will Taper Cuts Even With Virus Surging) and a resilient euro as sentiment moves more positive with Europe re-opening and economic data bouncing back.
But with stochastic indicating overbought conditions, a pullback may be in the cards for the short-term, which should be a buying opportunity if we see certain scenarios play out with this week’s economic events.
On Wednesday, we’ll get the latest monetary policy statement from the Bank of Canada, and expectations are for the BOC to maintain its overnight rate at 0.25% and possibly some positive rhetoric after a recent run of improving Canadian data. If we’re surprised with more dovish rhetoric, then it’s likely the beating the Loonie has taken recently may continue.
And on Thursday, we’ll get the latest monetary policy statement from the European Central Bank, also with expectations of no changes to policy for now. So, it’ll be interesting to see what the ECB will say with regards to their economic outlook and the Pandemic Emergency Purchase Program.
Overall, I don’t think this week’s events will shift the current bullish bias on EUR/CAD, but they will likely bring in volatility to the pair, and if that volatility takes the market down to that broken resistance area, I will enter a long position for a swing trade.
For my stop, I’m using the weekly ATR as my guide, placing my loss exit point below the swing June lows, and my target will be the 2020 highs that the market saw before the pandemic hit. Here’s what I’m doing:
Long half position on EUR/CAD at 1.5410, max stop at 1.5180, max target at 1.5900
I’m only risking 0.50% of my account and I’ve got a solid short-term potential return-on-risk of over 2.13:1 to start. If triggered, I plan on adding to this trade/rolling up my stops if the pair rallies higher to maximize my potential gains/reduce risk, if the market themes down the road still dictate a bullish case.
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching EUR/CAD for a potential long position as well, or do you see a drop coming soon? Let me know in the comments section below!
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