Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
The EURGBP pair is at interesting technical levels after reversing and falling sharply this week. It has been trading in an ascending channel (see charts below) since the post-Corona market gyrations in March and April.
It is now testing the support trendline of this channel right around the pivotal 0.90 level. While this technical setup may give rise to a bullish move just as much as a bearish one, I must note that the technicals look overall bearish. Both on the daily and on the weekly chart have turned bearish after the rejection at the resistance trendline (0.9175) earlier this week. The support trendline here at 0.90
remains the last obstacle to clear the way for a move lower.
However, in such situations, it’s hard to say which way the market will break out, so it’s better to be prepared for both outcomes.
EURGBP will form a big bearish engulfing candle on the weekly chart if it closes near present levels (and most likely it will since it’s Friday afternoon now). This would be a strong bearish signal.
Moreover, notice how the second (most recent) bullish leg is much slower compared to the first one from March. This confirms the divergence on the daily chart (see below) and is indicative of weak momentum in this second bullish leg. This is a situation that indicates the move is a retracement and it's usually followed by a reversal.
The 0.88 area is the first notable support lower, where the 3 big moving averages have grouped together.
The daily chart shows the channel clearly. We can also see that the unique FxTR overbought/oversold indicator and FxTR divergence indicator gave bearish signals together. If (once) the
support is cleared, the 0.8850 area will be the initial support based on the daily chart. It’s where the prior lows and the 55-day and 100-day moving averages stand.
Of course, if the bearish scenario unfolds, the move may accelerate and EURGBP can move below 0.87 and below the April low. In such a scenario, the 0.85 area will come into focus, and even the major post-Brexit lows around 0.83.
- Wait for a bearish breakout below 0.90, but also look for confirmation of the breakout
- A retest of the broken support trendline can be a great entry pattern if it occurs
Stop loss:
- Place the stop above the entry pattern
- Preferably look for 1:1 risk-reward or higher
Targets:
- The 0.88 area
- Note that 0.8850 is also support (as discussed above), so better to look at this target as a wider area rather than an exact number
We entered long USDCHF today at 0.9460 after the rejection at support yesterday. Additionally, the resistance trendline was broken as an early sign for a bottom, so an entry here is now justified.
The initial setup was for a breakout above the 0.9550 resistance), but entering here allows for a tighter stop now. However, do note that the 0.95 resistance is not broken, so this may turn into a range if USDCHF progresses higher in our favor. So, getting out of this trade around 0.95 would also be appropriate if there are signs that the resistance is holding again.
Trade signals from the past week
- July 3 - Long USDCHF from 0.9460 on the successful test of support (in progress as explained above)
TOTAL: 0 pips in the past week
TOTAL: +2725 pips profit since October 1, 2018
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Thank you!
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