Playing the EUR/CAD Downtrend - Trade Closed

Playing the EUR/CAD Downtrend - Trade Closed

         Good morning forex fiends! It was a tough ending for my latest trade idea as risk-off flows came in hot and heavy to close out last week's trading. As per normal behavioral patterns, this spelled trouble for "risk-on" assets like the Canadian Dollar, as well as my EUR/CAD trade.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

On the 60 minute chart above of EUR/CAD, we can see that the pair ticked higher through Thursday and Friday, triggering my second half position order along the way. And for a second, I thought this trade would work out nicely thanks to the boost to the Canadian Dollar, sparked by higher-than-expected CPI readings in Canada on Friday. Unfortunately, risk aversion accelerated throughout the Friday session as currency traders unloaded high-yielding currencies against the safe havens and weaker currencies. This propelled EUR/CAD higher to my stop level of 1.2975, closing out my entire position before the end of the trading week.

1st half: -95 pips
2nd half: -50 pips
Total: -72.5 (avg)/ -1.0% loss

This loss brings my account back slightly below breakeven for the year, and unkindly reminds me that Q2 has been a tough period so far. A few missed entries, and certainly the missed opportunity of catching the recent huge risk-off move has made a big difference in my performance and psyche.

But today is a new day, and as the trading saying goes, "every day is a new chance to start a winning streak." As long as I stay positive and do the work to be ready every week and every day, I know I'll be fine.

That's it for now, and as I mentioned, it's a new week. The big risk-off move may not be done yet as the global story hasn't changed much over the weekend, but it might be time for a relief rally, profit taking, or a short-squeeze. If so, I'll use it as an opportunity to jump into the risk aversion story at hopefully some better prices.

Thanks for checking out my blog and I hope everyone had a great weekend!

Trade Idea: 2012-05-17 04:42 ET

Good morning forex friends! I've decided to close out this trading week by dipping into an arena I'm not too familiar with: currency crosses! Even though it's not in my usual bag of pairs to watch, I think EUR/CAD is a simple play both fundamentally and technically.





Fundamentally, I'm sure by now we all know about the European debt crisis and the recent developments of how Greece may, or may not, leave the euro (if your not up to speed, check out Forex Gump's Piponomics blog for series of articles on the whole mess.) On the other side of the pond we have Canada, whose recent positive economic data, most notably their recent positive jobs data, has made Canada and the Loonie an attractive investment in the short-term. I think these themes will continue to bring sellers into EUR/CAD, at least until we see declining Canadian data and/or a resolution to the entire European debt crisis issue (you probably shouldn't hold your breath on the latter).

Technically, the pair has been in a downtrend for quite some time, and just recently broke through a major support area. Is it a fake out or will the market continue lower? I don't know, but for now I'm going with the trend.

On the 60 minute chart above, it looks like we're getting a short-term pull back to an area of previous support. It may now serve as resistance, so I'll look to scale in short between the current levels and just above the major psychological level, 1.2900. My stop will be a fourth of the weekly ATR from my average price, and my target will be this week's low. Here's what I am going to do:

Short half position EUR/CAD at market (1.2880), stop at 1.2975, pt at 1.2785

Short half position EUR/CAD at 1.2925, stop at 1.2975, pt at 1.2785

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This trade setup gives me around a 1.5:1 potential return-on-risk if both positions are entered. Of course, with so many different issues around the globe, sentiment can shift on a dime, so be sure to follow our Forex calendar for important upcoming events for both currencies. Also, be sure to follow me on Twitter and Facebook for updates and adjustments in case we see a sentiment change. Good luck, good trading and thanks for checking out my blog!