EURUSD: Dead-Cat Bounce or Real Recovery?
The medium term daily candle chart below shows the price history of the Euro currency (EUR) versus the United States Dollar (USD). This pair is known by the EURUSD symbol, and is trading near 1.2762 around time of publication today.
Last time this pair was reviewed in the Ideas You Can Trade series - volatility had started to pick up - as a steep dive was underway and the outlook was bearish.
Since then the pair become more bearish than expected with support reached far below the target mentioned in the last post, as the USD strengthened considerably in a short period of time, causing the EURUSD to reach a low near 1.2500.
The bounce that has followed from that low towards current levels can be considered either a dead-cat bounce - which are typically short-lived and means the downtrend should resume - or this may be a real recovery of the pair from this multi-year low support levelof 1.2500.
A break above the short term steep channel (point 6 in purple on the first chart below) would be considered bullish, whereas a failure to breakout on the upside of that channel would be bearish.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.2801 with a Limit to take profit @ 1.2846 and a stop-loss @ 1.2769 Risk/Reward Summary: Limit risk = +45 pips profit / (-32) Stop-loss risk = Gain to Loss ratio = 1.40
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.2656 with a Limit to take profit @ 1.2568 and a stop-loss @ 1.2724 Risk/Reward Summary: Limit risk = +88 pips profit / (-68) Stop-loss risk = Gain to Loss Ratio = 1.29
Medium Term Daily Candle Chart:
Longer-term Weekly Candle Chart: