The trading of July is closed which poses a great opportunity to review the weekly and monthly charts. Getting a sense for the long-term direction is important to keep an eye on future trends.
The EURUSD monthly candle of July was very bearish. Here are its main characteristics:
- It engulfed the June pinbar;
- The close was near the low, which indicates bearish control till the end of the month;
- The 1.35 horizontal support broke;
- The rising wedge (orange lines) definitely broke.
All in all Forex traders can observe bearish sentiment on the monthly chart. This is slightly different on the weekly chart where the EURUSD did signal a bounce back up: last week was a pinbar doji with a bigger wick at the bottom of the candle.
In my opinion a key bear-bull line is the 1.35 price level, which represents the broken bottom and retraces the bearish candle of 2 weeks ago:
- A respect for that level poses an opportunity to take shorts down to lower Fibonacci targets such as the next bottom (magenta) at 1.33, the next Fib target at 1.32, or the next daily bottom at 1.31.
- A break above 1.35 would certainly alter the outlook and there is a chance for price to retrace back higher to 1.36-1.3650 or even the 50% Fib at 1.3750 before hitting resistance.
The Cable uptrend has lasted 13 months but is it getting close to an end? The trend is your friend until it bends and the Sterling might be in the bending part right now. Here are the main clues:
- The month of July had a bearish candle stick formation (harami) on the monthly charts;
- Last month’s bearish candle was not the first one in the last 13 months, but it is the only one that has a close very near the low. This signals bearish control throughout the entire month.
The weekly chart shows yet again more bearishness:
- The uptrend channel (blue lines) has broken with last week’s bearish candle;
- The weekly candle closed near the low as well.
With a clear break of the trend line, the best way to capitalize on its bearishness is by waiting for the hook back to that same broken trend line. When a trader places a Fib retracement on the bearish candles, then a retracement back to the 38.2% and/or 50% Fib levels could occur and an entry at those levels with a stop loss just above the 61.8% Fib could be the best formula. The 50% also provides extra resistance confluence due to the round 1.70 level.
The target for the reversal is at first the -27.2% Fibonacci target at 1.67. If this level breaks then a continuation of downside can be expected down to +/- 1.65 where the next support level kicks in.
The break of 1.67 however would mean a break of the weekly bottom and significantly change the long-term outlook of the GBPUSD. The 1.67 is the same bear-bull line as the 1.35 is for the EURUSD. A break of 1.67 could be the first step for a fall down to 1.53. A bounce at 1.67 could lead to bullish revival back up to test the 1.72 top.
Do you see other currency pairs that have interesting weekly or monthly candles?
Winner’s Edge Trading, as seen on: