[B]My picks:[/B] Short EURCAD
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week
Like most other currencies and asset classes, the euro is set within a pattern of chop; and any tentative signs of renewed trend or volatile breakouts have been quickly snuffed out. There are two ways to proceed from here. Either we can work with the congestion and trade short-term positions to take small and quick profit; or we can wait for a true breakout. In the former scenario, we invite greater risk through discretion, attributing greater influence to technical levels than they deserve and running greater risk with each position for smaller reward. The second solution is just as fraught with trouble. Waiting for a breakout could take considerable time, developing a strategy around such a scenario is more difficult (chasing entry) and false breakouts are highly probable should underlying fundamental themes not support technical moves.
Overall, considering conditions, I would stay on the sidelines for the euro crosses (I would stick with those setups that are longer-term; but I have no exposure going into this week). However, as a potential setup, EURCAD shows promise. Recent congestion has developed following a significant rally through the second half of May. From a fundamental standpoint, this move was supported by the relative advantage that the Euro Zone economy holds over its Canadian counterpart (econimically and financially) under the assumption that the global recession has bottomed and is now easing. However, short-term interests like positive interest rate differentials don’t compensate for long-term issues like debt load, financial preparedness and the ever-looming presence of trouble on the horizon (like the fiscal health of Eastern Europe and the Euro Zone’s exposure to their neighbors’ debt). All of these larger issues that will struggle to produce immediate trend; but they will offer a bias and will be ready to carry the market should an immediate shift in sentiment present itself. In the meantime, I will look for an entry on half a short position at 1.6225 with a stop at 1.6285 and target at 1.6165. This plays to the short-term scenario based in chop. At the same time, I will also look for a confirmed move below 1.6150. I clearly need momentum and support from either a rally in the Canadian dollar in other pairs or plunge in the Euro. Should I get that and a medium frequency bar (60 or 240 min) close below 6150, it will be a signal for entry. A stop will have to be dynamic and dependent on technicals and momentum; but the target should be considered easily acheivable and offer a significant spread over risk assumed. I’ll work initially with 1.5975 as a stand-in objective.