While the complete escalation of the trade dispute between the US and China is dominating the news headlines around the world, Euro is presenting itself in a quite volatile mode.
This is most likely due to the upcoming ECB rate decision on September 12. In general, market participants expect a dovish European and that for a good reason: after the remarks from Finnish ECB member Olli Rehn, who said in an interview with the Wallstreet Journal on August 15, that "it is important that we (the ECB) come up with a significant and impactful policy package in September", chances are still very high that significant monetary stimulus from the ECB will be delivered in one or the other way, leaving the Euro vulnerable to a drop on a broad front.
In fact, it wouldn't come as a surprise to us if we get to see an anticipation of such Euro weakness which could be especially interesting in the EUR/CAD.
Why? Well, in the EUR/CAD a seasonal bearish window opens between August 28 through September 6, which developed over the last 24 years, putting the advantage in currency pair also on the short-side.
Seasonal Pattern in the EUR/CAD
The key parameter of this seasonal bearish pattern look as follows: between August 28 and September 06, EURCAD saw an average drop of 180 pips for 19 of the past 24 years.
In the remaining five years, it gained on average only 89 pips, while the maximum loss and maximum drawdown were 168 pips.
Trade the Seasonal Pattern: the EUR/CAD
And now the key question: how could we trade this?
Here's the plan:
- After identifying the profitable seasonal window, we sell the EUR/CAD on the closing price of the starting date on August 28 (22:59 CEST) at 1.4739.
- We identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
>Since the Daily ATR(14) is currently at 95 Pips while the maximum loss was 168 pips, we set the stop at 1.4739 + 170 pips = 1.4910.
- Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
>Since the average gain was 180 pips and our entry price was 1.4739, we place our take profit level at 1.4560.
- If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on September 06.
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/CAD Daily chart (between June 15, 2018, to August 30, 2019). Accessed: August 30, 2019, at 07:00 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the EUR/CAD fell by 3.7%, in 2015, it increased by 6.9%, in 2016, it fell by 6.1%, in 2017, it increased by 6.6%, 2018, it increased by 3.6%, meaning that after five years, it was up by 7.1%.
Check out Admiral Markets' most competitive conditions on EUR/CAD and start trading from as low as 0 pips. To test Admiral Markets EUR/CAD offering in combination with the described strategy above register for a free demo account today and experience the live market risk free!
Discover the world's #1 multi-asset platform
Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!
Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
- Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
- To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
- The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
- Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.