EURGBP: Still Under the Affect of Medium Term Bearish Channel
The daily candle chart below shows the price history of the Euro currency (EUR) versus the Great British pound (GBP), known as EURGBP and trading near .7929 around time of publication today.
Last time this pair was reviewed in Ideas You Can Trade, the outlook was bearish. Since then support failed near .7872 on September 18th and a double-bottom on .7765 was reached on October 1st before recovering over .8000 in mid-October.
Since then the pair is back on the lower support line of the medium term bearish channel (point 6 in red on chart below) which has been influencing the main theme of the trend for EURGBP for nearly two years already.
However, since the pair broke under that channel in June, it appears the channel itself may have shifted lower with the lower support line acting as the new median line as prices appear to regress towards that support line (where it is acting as both support and resistance) over the last few months.
Therefore, when EURGBP is above that bearish support line prices should be briefly bullish, and then return to test support where it will then fail thus allowing EURGBP to trade under that support line and become briefly bearish, before again returning to find resistance on that line until a break-out above it occurs again and the cycle repeats.
However, the overall trend outlook still remains bearish despite the strong recovery from the low reached earlier this month, since the lower support line still appears to be affecting the price direction.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .7949 with a Limit to take profit @ .8019 and a stop-loss @ .7899 Risk/Reward Summary: Limit risk = +70 pips profit / (-50) Stop-loss risk = Gain to Loss ratio = 1.40
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .7899 with a Limit to take profit @ .7869 and a stop-loss @ .7929 Risk/Reward Summary: Limit risk = +30 pips profit / (-30) Stop-loss risk = Gain to Loss Ratio = 1.00
Medium Term Daily Candle Chart: