The Great British Pound has been in a grand and major uptrend for more than a year. But the Pound trend has recently been struggling with continuation. An example is the GBPUSD, but it is not the only pair with bearish price action. The GBPCHF and EURGBP are also making retracements in their up and downtrend. Is this GBP weakness a reversal or just a small retracement prior to trend change?
Struggle on the weekly chart
The GBPCHF weekly chart showed heavy bearish signals in the past few weeks:
- Last week posted a very bearish weekly candle
- The 2 weekly candles prior to last week had significant wicks on top
- Furthermore, price action has also broken through the uptrend channel (blue)
There is plenty of evidence that the weekly chart is running into problems with its uptrend.
However in the bigger picture the uptrend could be struggling simply due to proximity of the monthly top (red line), which is a classical pausing/reversal spot. Also, there are still plenty of support levels the Pound could use against the Swissy (see chart) before an uptrend revival is out of the picture… with that done and said, let us take a closer look at the EURCAD.
EURCAD break north
The head and shoulders chart pattern formation (magenta lines) plus the break of the support trend lines (purple, blue, orange) placed this pair firmly in a downtrend. But despite its bearishness, the last horizontal support levels (green) turned the tide on the EURCAD as the pair rebounds back to the upside.
The EURCAD weekly chart not only posted a bullish candle last week, but it closed 6 pips off of the weekly high. When traders compare the ultra-small wick to the rest of the candle body (from high to low 170 pips), we can calculate that the wick only equals 3.5% of the entire body. In other words: the bulls certainly remained in control the entire week.
With the bounce off of the weekly bottom (green line) what target could a trader expect?
Any of the Fibonacci levels could turn out to be a resistance spot for further weakness of the Euro against the Canadian Dollar. The chances of price retracing back to the 50% Fibonacci retracement levels seem to have the most confluence due to 1.50 round number.
EURCAD trade details
A potential entry could be at the retracement of last week’s bullish candle, for instance at the half way mark with a stop loss below last week’s candle low:
- The entry would be at 1.46 (green line)
- The stop loss at 1.4493 (red line)
- A take profit at 1.4980 (purple line)
- A trail stop loss below each new daily candle by 15 pips is useful to protect against an earlier turnaround at the 38.2% Fib level
- The reward in this trade setup is 380 pips versus a 107 pip risk for a reward to risk potential of 3.5 to 1.
What do you think of the potential EURCAD trade setup?
Thanks for sharing this article and Happy Trading!
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