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Talking Points:

  • Established Uptrend on EUR/CAD Weekly Chart
  • A One-Candle Daily Pullback That Poses Problems
  • The Ideal Time Frame for Buying EUR/CAD

EURCAD is currently in one of those situations where a long trade would be perfectly justified, but yet for certain reasons, it may be premature as well.

As shown below, the weekly chart is in a clear uptrend. In fact, it has been accelerating upwards to boot. Some traders may argue that the current week's candle is threatening to become a pin, but it is far too early in the week to tell that for certain. As a result, it is best to proceed on the assumption that the established uptrend will continue.

Guest Commentary: EUR/CAD in Strong Weekly Uptrend

The weekly chart of EUR/CAD shows a clear uptrend as well as a more recent acceleration in the overall momentum.

The daily chart below is actually where the main worry for this long trade lies. Thus far, the pullback has only been one day long, and while this can certainly happen in a strong uptrend (there are prior examples of this even on the chart itself), a pullback of three or four candles is very much preferred.

Guest Commentary: Possible One-Candle Pullback in EUR/CAD

A one-candle pullback thus far on the EUR/CAD daily chart is the main worry for potential long trades, forcing positions to be taken on much lower time frames instead.

Because of the one-candle nature of the pullback on the daily chart, a nimbler trade might be required in order to manage this set-up more efficiently, and for this reason, we drop down to the four-hour chart below. Here, we readily see previous levels of support and resistance from which we can determine a zone where price would be expected to bounce.

Guest Commentary: Nearby Support Zone for Buying EUR/CAD

A clearer picture of the zone where EUR/CAD could find support before a bounce higher is evident on the four-hour chart.

Again, though, because of the doubts that arise on the daily chart, a trade initiated on the smaller time frames is preferred, both in order to obtain greater precision, and to provide ample opportunity to scalp part of the position out, if necessary.

As such, the hourly chart below shows a pullback scenario that is much clearer, and as a result, is much preferred as well. The final support zone is 1.5244-1.5377, which represents a risk of only 33 pips. That is extremely small when considering the prospects for a trend continuation on the daily chart.

Guest Commentary: Narrow Risk Zone on EUR/CAD Hourly Chart

A narrow zone of risk is evident on the hourly chart of EUR/CAD, but nonetheless, in the interest of risk, long positions might still be taken on the 15-minute chart instead.

Nonetheless, in the interest of nimbleness and risk, the trigger is best taken on the 15-minute chart (not shown), where traders can keep their eyes out for pin bars, bullish engulfing patterns, and/or bullish reversal divergence as potential long-entry signals.

As always, two or three attempts may be required before price formally turns up. Traders would also be advised to enter using multiple positions so that they will have the option of scaling out should price action turn hostile following the entry.

By Kaye Lee, private fund trader and head trader consultant,