The EURUSD closed with a very powerful bearish daily candle on Thursday (red circle). This daily candle is a power bar because of:
- Its massive size (234 pips) compared to previous daily candles
- Its close was very (10 pips / 5%) near the candle low
The Euro interest rate decrease on Thursday was the catalyst of this tremendous drop and Friday’s NFP and unemployment figures from the U.S. could not alter the landscape too much: a bullish daily candle but with a decent sized wick on top.
Such big and decisive momentum bars often lead to more trend continuation. Especially in case of the EURUSD which already was engrained in a bigger down. Now with a clear break of the 1.31 and 1.30 support levels, the downtrend has ample space to continue to the next support level at 1.2750 (bottom), 1.2650 (bottom), 1.25 (round figure) and 1.2250 (purple trend line). Traders can potentially capitalize on the downtrend by waiting for a retracement back to the 38.2% Fibonacci retracement level and/or taking break outs of bear flags and chart patterns. Stop loss can be above the top or one of the higher Fibonacci retracement levels.
Impossible as it may seem, the GBPUSD has a similar or even more bearish weekly candle (red circle) than the EURUSD. The analysis for the GBPUSD is therefore simple: big bearish candles in a downtrend should lead to more downtrend continuation. Any retracements or break outs on the Cable should offer decent downtrend opportunities. Targets are the 1.60 (round number) and 1.850 (weekly bottom).
EURGBP REVERSAL POTENTIAL
The EURUSD or GBPUSD both have tremendous downside potential versus the US Dollar (as seen above), but by reviewing the EURGBP we are able to see which pair has the best potential. The EURGBP is in a strong downtrend but has recently paused and consolidated. This means that price is either pausing for more downside OR starting a reversal bounce to the upside. Due to last week’s bullish engulfing twins (green circle) on the weekly chart, traders could be expecting at least some bullish retracement. Traders will need to keep an eye on the trend lines:
- Break of the bottom of the bear flag (purple) for downside (red arrow)
- Break of the top of the bear flag (purple), resistance trend line (red) and top (orange) for more upside (green arrows)
Obviously the 3rd scenario is that price keeps bouncing between support and resistance without any clear break. In that case the EURGBP could stay in its consolidation mode and the EURUSD and GBPUSD will move with roughly equal distance. As always, price and time will tell…
What do you think of the EURUSD and GBPUSD?
What do you see in the EURGBP chart?
Let us know down below in the comments section!
As always, thank you for sharing and wish you Happy Trading.
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