EURCHF: short-term bullish support in bearish channel
The medium term chart below shows the EURCHF pair following a short term bullish support line (point 2 on chart) in the current session. Earlier this week on Tuesday it had broken above the upper resistance line of a short term bearish channel (point 1) and then reversed in the past two trading sessions on a equidistant bearish resistance line just above. Thereafter the pair returned to test near the upper resistance line of the short term bearish channel (point1) coinciding near the short term bullish support line (point 2) where it is currently trading near 1.2356 (as of publication).
The EURCHF pair had continued down this short term bearish channel (point 1) since a previous article where a likely bearish continuation was noted in late July 2013. The short term price behavior still looks to be bearish although the current very short term bullish trend line (point 2) may provide a continuation. If a bullish continuation occurs (on point 2) the path would intersect with the trajectory of the long term bullish support line (point 6) intersecting near 1.2600 by mid September.
If the current support line (point 2) fails, a retest may occur on the support line of a medium term bullish channel (point 3) which if failed, could propel the pair back within the short term bearish channel (point 1) and down a very steep short term bearish resistance line (such as point 5) which could develop with additional long term bearish resistance much further below near 1.2000 (point 7).
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.2380 with a Limit to take profit @ 1.2424 and a stop-loss @ 1.2353 Risk/Reward Summary: Limit risk = + 44 pips profit / (-27 ) Stop-loss risk = Gain to Loss ratio = 1.63
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.2331 with a Limit to take profit @ 1.2274 and a stop-loss @ 1.2358 Risk/Reward Summary: Limit risk = +57 pips profit / (-27) Stop-loss risk = Gain to Loss Ratio = 2.11
Daily candle chart: