EUR/CAD bulls have been on a roll for a few months, but seeing strong resistance recently. Is a pullback ahead and another opportunity to play the uptrend?
Trade Idea: EUR/CAD Uptrend Pullback
Fundamentally, I’m still a fan of the euro over most of the other majors as economic data continues to recover, enough so that we just saw the ECB reduce its monthly asset purchases in a recent monetary policy meeting. The initial reaction was bearish as the market didn’t expect the extension of the purchases and the ECB’s dovish tone, but since then it’s back to rally mode for most euro pairs as the economic data continues to be more good than bad.
On the other side of the pair, we’ve got the Canadian dollar that’s seen more disappointing reads lately (most notably in October with disappointing GDP data) and dovish commentary from the BOC’s monetary policy statement. In November we saw weaker-than-expected trade balance data and a tick up in the unemployment rate to likely add a little more pressure to the Loonie.
Overall, I think the bearish CAD sentiment may continue, mostly on the thought that the recent rate hikes in the Summer to 1.00% may continue to cool the economic like we’ve seen in the past couple of months
In terms of price action, the pair has been in rally mode since bottoming out around the 1.4500 handle in the Summer, and now it’s finding strong resistance around 1.5000. If we see a pullback, support could return around the rising lows trendline and minor support area between 1.4800 -1.4900. And with the stochastic still pulling into oversold territory at the moment, we could get a little bit more downside before support returns.
If the market does get down to the potential support area, I’ll look to take a nibble long and my stop will be my usual one ATR stop to limit my max risk. Here’s what I’m going to do:
Long half position at 1.4850, max stop at 1.4550, initial target at 1.5150
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to make adjustments on a retest of the recent swing high around 1.5150, which would likely to be adding to my position/roll up my stop to max out the profit potential and limit risk. Stay tuned, good luck and good trading!
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