EURCAD: Breakout to Downside of Uptrend Confirmed as pair Dips Lower After Open
The daily candle chart below shows the price history of the Euro currency (EUR) versus the Canadian dollar (CAD) over the medium term from mid October 2012 to the present. This currency pair is known by the EURCAD symbol (acronym) and is trading near 1.4025 (as of publication).
This currency pair was last covered by the Ideas You Can Trade series in late June after the reversal under long term bearish resistance (point 3 in red on chart) was discussed along with the ensuing bearish continuation along a short term resistance line (point 4). Since then, both short term bullish support lines (such as point 2) as well as short term bearish resistance lines (such as point 4) have occurred on several occasions.
Over the last few weeks as the pair had built support along a medium term trend line (point 5 in green), a steeper turn in the uptrend followed along a short term bullish support line (point 2) where the pair has failed to hold in the previous session and opening/trading lower today confirming a breakout of the previous trend.
If the short term bullish trend line (point 2) can be resumed, the pair could target closer to 1.4300 in the near term and closer to the medium term bearish resistance line (point 1 in yellow). However, if the short term bullish line is not regained, then a bearish continuation could follow along a short term bearish resistance line (point 4) with a target of medium term bullish support (point 5) and long term bearish resistance (point 3) near 1.3800 by the beginning of November 2013.
Below are examples of how to trade a bullish continuation a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.4066 with a Limit to take profit @ 1.4099 and a stop-loss @ 1.4043 Risk/Reward Summary: Limit risk = +33 pips profit / (-23) Stop-loss risk = Gain to Loss ratio = 1.43
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.3998 with a Limit to take profit @ 1.3951 and a stop-loss @ 1.4022 Risk/Reward Summary: Limit risk = +47 pips profit / (-24) Stop-loss risk = Gain to Loss Ratio = 1.95
Medium term chart: