EURCAD At Key Level and Consolidating, Awaiting Consolidation Breakout
Cory Mitchell, CMT
When oil tanked the EURCAD spiked on March 8. The rise started near 1.52 and went as high as 1.5993 over the ensuing days. Since the peak on March 18, the EURCAD has been in a volatile decline and is currently testing the 1.5220 area for the third time.
The price bounced aggressively off the region on March 20, rallying to nearly 1.58.
1.5220 was tested again on April 3, and the level is being constantly tested between April 6 and 7 as the price consolidates between 1.53 and 1.52
The pair is correlated to oil, as the chart shows. I have inverted the oil scale, as a falling oil price tends to align with a rise in the EURCAD.
The graph isn't a perfect representation of what is going on. Canada sells a different type of oil than the West Texas variety typically discussed (shown). Also, West Texas as shown is priced in US dollars, so when dealing with Canadian dollars, the USDCAD rate also comes into play.
EURCAD Breakout Direction and Exits
All that said, the consolidation breakout in the EURCAD is what matters.
If oil rises, that will help CAD, pushing EURCAD down. If oil falls, the hourly oil charts show oscillations between $20 and $28, corresponding to 1.52 and 1.57 on EURCAD...but note that even when oil weakens, EURCAD is not rising as much anymore. If we get an upside move in EURCAD, I am tempering expectations to the 1.55 to 1.56 region.
Looking at oil is not a requirement. The EURCAD will make its move whether any of us look at the oil price. A breakout below 1.52 signals a further decline.
Over the next couple of months, the pair could fall back into the 1.48 to 1.47 region. This region acted as resistance through the latter half of 2019.
A trailing stop loss could also be used to capture movement in the pair. On the 4-hour chart below, a version of an Average True Range trailing stop loss is shown. It works well in trending conditions but not so good in sideways conditions. Another alternative is to use Renko charts as a trailing stop loss.
Whenever we are dealing with consolidations, it is important to remember false breakouts. If we get a breakout that quickly fails, it can be discouraging, but other opportunities will likely occur soon after.
With most of us stuck at home right now, likely getting bombarded by news online and on TV, it can be difficult not to get biased by it. Too much news can definitely cloud the vision, making it harder to make unbiased trades. Read, How the News Hurts Your Trading, and How to Take Advantage to help clear the brain clutter.
By Cory Mitchell, CMT. Join the discussion in my free Facebook swing trading group.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.