Looking to grab some potential pips from EUR/CAD this week as volatility may pick up with upcoming European and Canadian data ahead.
Descending Channel Resistance on EUR/CAD?
Last week, I threw EUR/CAD onto the watchlist as a potential short idea as the pair retested the top of a descending channel. This week, the falling ‘highs’ pattern was retested even further, giving me a better price to take a short position. And I’d still like to take a short as we will get catalysts soon that could potentially bring in sellers in the short-term.
First, we could see bearish sentiment on the euro pick up if the upcoming Eurozone PPI and services PMI updates disappoint. The services PMI data is the most notable, and with today’s Eurozone manufacturing PMI showing an arguably net negative situation, and with much of Europe going back into lockdown in November, the services numbers are likely to disappoint too.
As far as CAD goes, we’ll get the latest employment update from Canada to likely spark some action for the Loonie on Friday. And with today’s Canadian PMI report showing a sharp expansion in output, odds are pretty good that we’ll see a pick up in new jobs in November.
With those points in mind and if expectations of recovery continue to push traders to lean net positive on risk, the odds are favorable for EUR/CAD to return to its slow downtrend. And with the ECB potentially hitting the markets with more stimulus next week, it makes sense to make this swing position to go for a potentially bigger move for the rest of December.
So, I’m shorting EUR/CAD at the top of its descending channel, starting with a nibbler position for now. My stop will be using the daily ATR as a guide, and my max target is the bottom of the channel marked on the chart above. Here’s what I’m doing:
Short half position on EUR/CAD at market 1.5600, max stop at 1.5780 with 0.50% risk, max target at 1.5200
I’m only risking 0.50% of my account and I’ve got a solid potential return-on-risk of over 2.24:1. If the data / reaction to the data does not play out as expected, I’ll be sure to cut the trade/orders away quickly and move on to the next one. If everything goes my way and we see a big move to the downside, I will look to adjust the position further, hopefully, to reduce risk and increase my maximum potential reward.
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching EUR/CAD for a short as well? If so, what’s your entry strategy and risk tolerance? Let me know in the comments section below!
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