- January 8, 2019
- Posted by: Trading
- Category: Analysis
EUR/CAD Trading Strategy: Pending Short at 1.5276
- Bearish EUR/CAD is one of my top trading opportunities in 2019, wanting to enter short
- BoC may support rate hike estimates this week, wanting to sell Euros for higher liquidity
- Risk-reward setup requires a climb to 1.5276 in order to target October rising trend line
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EUR/CAD Fundamental Bearish Argument
Generally, I am fundamentally bullish the Canadian Dollar in 2019 against most of its major counterparts excluding the US Dollar and the anti-risk Japanese Yen. In short, the Bank of Canada envisions raising interest rates to a ‘neutral range’ to keep inflation under control. This would entail perhaps three rate hikes and the markets are underpricing this. Read more about my top trading opportunities here.
If this is indeed the case this year, then the markets will eventually have to catch up with reality and we may be in for gains in the Canadian Dollar. In this case, I would be looking to go long CAD against comparatively fundamentally dovish currencies. One of those may be the Euro. Political uncertainties, Brexit consequences and fewer hikes than its Canadian counterpart support this argument.
In the near-term, the BoC has its next monetary policy announcement this week and it may reinforce its commitment to hike this year. The risk here is that it follows the path of the Fed and takes on a relatively dovish tilt. As such to avoid excess volatility, I am interested in shorting EUR/CAD as opposed to AUD/CAD or NZD/CAD. The former offers more liquidity than the latter ones thanks to the Euro’s popularity.
EUR/CAD Technical Analysis – Downtrend to Accelerate?
EUR/CAD has confirmed multiple bearish warning signs, hinting that it is perhaps entering a dominant downtrend for the medium-term. From a risk-reward perspective, the decline under the rising support line from late November has made for a tough setup to catch gains into the next trend line from October. My target is the December 14th low at 1.50852 (just above that line) with a daily close stop above 1.53713.
Thus, for at least a two-to-one risk-reward ratio, I am looking to enter short at 1.5276 in hopes that prices will rebound in the interim. Otherwise, I will be keeping a close eye on the Canadian Dollar crosses mentioned earlier for further opportunities down the road. You may follow me on twitter @ddubrovskyFX for updates if this setup is triggered or for other trades I take in CAD.
EUR/CAD Daily Chart
Chart created in TradingView
FX Trading Resources
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter