EURUSD: Support builds for a third day along ascending trend line after Steep Drop Last Week
The medium term chart below shows the Euro currency (EUR) versus the United States Dollar (USD); this currency pair is known by the EURUSD symbol. The pair is currently trading 1.3515 and building support over the last three trading days (and currently trading near session highs) after a sharp drop during the end of last week just before the pair was last covered in the Ideas You Can Trade series in the WorldWideMarkets Community where the validity of the bearish analysis was reiterated.
Since that last discussion, the EURUSD dropped steeply to find support exactly upon the line that had been drawn parallel to the short term support channel (point 2 in blue on chart) which has proven to hold and coincide near session lows in each of the last three days.
If this line can continue to hold, then a steeper path may unfold along a new line (such as point 1 in white) with a target back near the bearish line parallel to long term bearish resistance (point 5 in dark red) and with the 100% Fibonacci level just above it and further resistance near 1.3830 that had been reached in previous weeks.
If the support line of the last few session fails to contain the downward momentum of last week, then EURUSD may aim to test the very long term bullish resistance line (point 4 in red) which intersect with very long term bearish support line (point 5) near the 61.8% Fibonacci level around 1.3345, which when taken altogether may provide a confluence of support.
From a different view, the EURUSD is still trading with the line medium term bearish channel (formed by both lines of point 3 in green) that has contained the momentum since earlier this year and which could provide support (near the lower line of the channel) if the above mentioned support lines fail.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.3555 with a Limit to take profit @ 1.3639and a stop-loss @ 1.3512 Risk/Reward Summary: Limit risk = +84 pips profit / (-43) Stop-loss risk = Gain to Loss ratio = 1.95
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.3437 with a Limit to take profit @ 1.3372and a stop-loss @ 1.3464 Risk/Reward Summary: Limit risk = +65 pips profit / (-27) Stop-loss risk = Gain to Loss Ratio = 2.40
Medium term daily candle chart: