EURGBP: Break above long term bearish resistance line
The daily candle chart below shows EURGBP successfully closing above long term bearish resistance (point 6) in the previous session and opening higher in today’s session where it is trading near session highs around .8750 as of publication.
As anticipated in a previous article in mid July on the EURGBP, the medium term bullish support line (point 4) provided support after a previous reversal on the long term bearish resistance line (point 6) where it then ascended a short term bullish support line (point 1) leading to the bullish price action of the last few sessions. The trajectory of this medium term bullish support line (point 4) will intersect the long term bearish resistance line (point 6) by the end of August 2013.
Although the breakout looks genuine, a small pull-back to test the bearish resistance line - which could now act as support – may occur. This could enable EURGBP to also pivot on the short term bullish support line (point 1) before moving higher. Therefore a very short term pull back could follow along a bearish trend line similar in slope and length to the very short term bearish momentum observed on this chart in recent history (point 5) as well as less aggressive short term bearish resistance (point 2) which could also bring the pair to retest the bearish resistance line (point 6) which could then support a descent.
If the bullish momentum continues - static resistance may be targeted at .8800 - and support could also be found on top of the short term bearish channel where the resistance line may act as support.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .8772 with a Limit to take profit @ .8805 and a stop-loss @ .8745 Risk/Reward Summary: Limit risk = +33 pips profit / (-27) Stop-loss risk = Gain to Loss ratio = 1.22
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .8729 with a Limit to take profit @ .8688 and a stop-loss @ .8759 Risk/Reward Summary: Limit risk = +41 pips profit / (-30) Stop-loss risk = Gain to Loss Ratio = 1.37