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I’m all about pairing a strong versus a weak currency this time so I’m looking at this breakdown and pullback setup on EUR/CAD. Check it out!

EUR/CAD Trade Setup

On the pair’s daily time frame, it can be seen that price made a head and shoulders-ish formation, signaling that a long-term downtrend was due. Price consolidated above the neckline for quite some time before eventually breaking lower, confirming that sellers are taking control of EUR/CAD price action.

Fundamental biases line up neatly with the techs on this one, as the OPEC output deal is expected to keep crude oil and the positively-correlated Loonie supported for the foreseeable future. After all, the cartel pledged to lower output levels for six months starting in January next year and was even backed by non-OPEC oil producers. In contrast, the euro got beat up after the ECB had its “dovish taper” in reducing the size of monthly bond purchases while extending the QE program end-date by six more months.

EUR/CAD Daily Forex Chart
EUR/CAD Daily Forex Chart

Euro bears already made a bit of headway following the break lower, but the chart formation is around a couple thousand pips tall so there’s still a lot of downside room. I’m keeping my fingers crossed for a quick pullback to catch a slightly better entry price, and I’ve zoomed in to the 1-hour chart to spot retracement levels.

I’m seeing a short-term descending trend line connecting the latest highs of price action, and the 50-61.8% Fib levels line up with an area of interest between 1.4100-1.4150. I haven’t put short orders yet since I plan on watching how the pair reacts to these levels before hopping in.

EUR/CAD 1-hour Forex Chart
EUR/CAD 1-hour Forex Chart

Stochastic is already turning down from the overbought zone to indicate a return in bearish pressure. I’m also seeing a bit of a bearish divergence on this time frame, with price making lower highs and stochastic drawing higher highs. Fears of an Italian banking crisis appear to have eased after the government pledged to rescue Monte dei Paschi if the private bailout fails, so this could keep the shared currency supported in the meantime.

I’m eyeing a potential short around 1.4100-1.4050 with a stop past the swing high at 1.4350. I’ll be aiming for the next long-term area of interest around 1.3100 as my ultimate PT but I’ll roll my stop to entry once price tests the swing low near 1.3800.

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.

Risk Disclosure
Pipcrawler’s Q3 2016 Blog Trading Performance

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