Both the European Central Bank and Bank of Canada will give their latest monetary policy statements later this month, which means that we’ll likely see a pick up in action in EUR/CAD over the next couple of weeks. With the pair close to testing a major resistance area…will it draw in sellers if retested?
EUR/CAD Resistance Retest and Hold?
Fundamentally, I’m still in favor of the Loonie over pretty much every other major currency. The recent economic updates from Canada have been relatively better than what we’ve seen from the other major economies, most notably another positive surprise in the latest Canadian employment data and today’s positive consumer prices update. So, I see the odds as pretty low that the BOC will going into stimulative monetary policy action in their upcoming monetary policy meeting. The ECB on the other hand has seen economic sentiment continually drop for the euro area, and inflation continues to tick lower. It’s likely we’ll continue to hear dovish rhetoric from the ECB, both leading up to and at the actual event later next week.
In terms of price action, EUR/CAD has been in a pretty longer-term downtrend since topping out around 1.6150 back in March of 2018. More recently, the bears have managed to keep the pair below 1.4700 for the past month, rejecting the bulls in two rally attempts. We’re currently in the middle of another rally higher to that crucial 1.4700 handle, and if retested, we may see another bearish rejection if the ECB continues to stay dovish while the BOC continues to steer clear of talking about the need for easier monetary policy conditions.
So with that said, I’m looking to short EUR/CAD to play my fundamental bias on a further pullback, scaling in around a major area of interest. My stop will be the weekly ATR, and my target will be the recent swing lows for an attractive potential return-on-risk. Here’s what I’m doing:
Short half position EUR/CAD at 1.4680, max stop at 1.4880 with 0.50% risk, max target at 1.4450
Short half position EUR/CAD at 1.4725 max stop at 1.4880 with 0.50% risk, max target at 1.4450
I’ll be risking 1.00% of my account if both positions are triggered for a potential 1.44:1 return-on-risk to start. Looking forward, if it looks like I’m not going to get the pullback I want, I will adjust my entry strategy according to get in but keep my risk limited to a max 1%.
That’s it for now. Stay tuned for updates and 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.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.