Playing the EUR/CAD Downtrend

Playing the EUR/CAD Downtrend

          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.

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

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!