On November 17th I commented on how the EURCAD had broken an eleven-month trend line. The support level dates back to December of 2015 and had served as support on four separate occasions before last week’s break.
Since then the pair has edged lower without much hesitation. However, buyers are finally getting some traction today and have advanced the price 100 pips from the session low.
While there isn’t much to do at the moment but sit and watch, a retest of former trend line support as new resistance could make for a compelling opportunity.
With that said, a less liquid and occasionally volatile pair like the EURCAD calls for confirming price action on the retest. For my part, that means a bearish pin bar on a retest of the 1.4420 area next week.
One reason this trade idea interests me is the 370 pips of downside potential. Key support doesn’t come in until the 1.4050 handle, which is near the December 2015 low (ECB low). This area was also a factor between September 2014 and June of 2015.
A daily close below 1.4050 would open up another 290 pips of downside toward the 1.3760 handle. Combine the two and you get 660 pips of potential should sellers prevail over the coming weeks.
But first, we need a retest of the 1.4420 area followed by confirming price action. Until then I’ll remain on the sidelines.
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