Earlier this morning, the European Central Bank (ECB) came out with their monetary decision to hold their target rate steady at 1.0%. Traders took a few hours to digest the news, and then a short squeeze on the Euro took place as the single currency catapulted higher. Prices on the EURCAD are now near resistance offering an opportunity to enter this trade as a seller.
The EURCAD has been in a downtrend for several weeks now. We first discussed this trend back on December 16, 2011. Then, on December 28, 2011, prices broke below long term support. This break accelerated the down trend and has produced in excess of 1,000 pip trend in about 45 days.
Moving to a 2 hour intraday chart and using trend lines, we can see that prices are pushing up to our resistance line that has been in place since November 23, 2011. This resistance line may act like a ceiling and repel prices lower.
However, it is possible that prices could continue to push higher as well. To help us determine if prices will respect this resistance line, we will look for our slow stochastic oscillator to turn down. It is important to wait for your entry signal to trigger.
This was reviewed in detail in the Las Vegas Expo on timing trades with trend lines. Additional confirmation on the trade would be if we see a bearish candle formation occurring near this resistance line like a long wick to the upside.
Assuming this resistance line is respected, enter a sell trade when the slow stochastic crosses down. Place your stop loss just above the swing high. Place your take profit level at least twice the distance of your stop loss level in pips.
---Written by Jeremy Wagner, Lead Trading Instructor, DailyFX Education
To contact Jeremy, email jwagner@dailyfx.com. Follow me on Twitter at @JWagnerFXTrader.
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