Trump’s protectionist plans aren’t looking too good for it’s main trading partners at the moment, so I’m considering this short Loonie position against the euro to hedge my EUR/NZD and EUR/AUD positions also.
EUR/CAD Trade Idea
During his first day in office, U.S. President Trump signed an executive order to quit the TPP and talked about his plans to renegotiate NAFTA with Mexico and Canada. Now this particular trade agreement covers the seamless exchange of goods among the three nations, amounting to $1.8 billion worth of goods crossing the U.S.-Canada border daily. To top it off, Canada’s exports to the U.S. make up roughly 20% of its GDP.
Because of that, it’s no surprise that the Loonie has been sinking in anticipation of higher tariffs and taxes for Canadian goods and services. Canada has already been on shaky footing even before Trump took office as the economy is still struggling to recover from the effect of the oil price slump. Its latest headline retail sales and CPI fell short of estimates while BOC Governor Carney has mentioned that the Trump administration brings more uncertainty.
In contrast, the euro zone has seen more than its fair share of economic improvements in the past few weeks, prompting speculations of ECB tapering. Although ECB head Draghi has clarified that policymakers haven’t discussed this idea yet, market participants seem to be under the impression that the central bank won’t be adding to their stimulus efforts either.
For now, the main risk for euro trades seems to be the Brexit negotiations. In U.K. Prime Minister Theresa May’s speech last week, she warned that giving the Brits a difficult time could backfire on the euro zone so there’s a good chance that EU officials might retract their claws during the proceedings, possibly even producing a deal that would be amenable to both the U.K. and the bloc.
I haven’t set any actual orders yet since I plan on waiting for the U.K. High Court ruling on the need to secure parliamentary approval before officially invoking Article 50 to get the ball rolling on the Brexit negotiation process. I’m looking at a long entry above the 1.4300 handle with a stop below the 1.4000 major psychological support and a target of 400 pips, which is roughly the same height as the chart formation.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.
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