EURGBP: Bearish breakout possible
The chart shows EURGBP descending a short term bearish resistance trend line (point 1 on chart) and testing the support line of a ascending short term bullish channel (point 3 ) which coincides with medium term horizontal support at .8468 (point 5). There is a convergence taking place between short term resistance (point 2) and bullish support lines (3 and 4) and a developing symmetrical triangle formation which is testing a breakout to the downside.
Although prices have been narrowing into this developing triangle the recent false breakout above short term resistance (point 2) reversed the bullish move into a bearish path (point 1) and if current support levels fail (points 3 and 5) then a bearish continuation may ensue along the current trend line (point 1) which could propel EURGBP toward .8350 and further support (near point 6).
Within the current short term bearish trend, a bounce on the short term bullish line (point 3) could provide enough support to bring EURGBP back up along a potential bullish trend line (plotted with the angle of previous bounces on this line) and back into the triangle formation.
Below are examples of how to trade a bearish continuation if the trend continues and current support levels fail or a bullish reversal if the trend reverses along current support lines.
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .8490 with a Limit to take profit @ .8540 and a stop-loss to cut losses @ .8467 Risk/Reward Summary: Limit risk = +50 pips profit / (-23) Stop-loss risk = Gain to Loss ratio = 2.17
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8446 with a Limit to take profit @ .8335 and a stop-loss to cut losses @ .8487 Risk/Reward Summary: Limit risk = +111 pips profit / (-41) Stop-loss risk = Gain to Loss Ratio = 2.71