EURUSD: Short-term bearish resistance and short-term bullish support point towards triangle/wedge formation as Greece deal headlines intensify
The medium term daily candle chart below shows the price history of the Euro currency (EUR) versus the United States Dollar (USD). This currency pair is known as EURUSD, and is trading near 1.1344 around time of publication today - after bouncing back and forth between 1.13 and 1.14 during the trading session.
The major theme this Monday across global financial markets and media outlets centered around Greece's fate within the EMU and its debt obligations to creditors - as emergency meetings and funding developments unfolded. Last time EURUSD was reviewed in Ideas You Can Trade - was earlier this month when the pair had soared over prospects of a deal brewing between Greece and its creditors.
Since then the pair has recovered higher and hit a bearish resistance line (see yellow line on chart below) of 1.1435 last Thursday. While the short-term and immediate-term trend may look bullish, the medium term trend is still bearish. Today's low tested the lower support line of a short-term bullish channel (see blue lines on chart below), and coupled with the above mentioned short term bearish resistance, a triangle or wedge formation appears to be developing and precede a breakout/reversal.
A breakout of either of these lines would help volatility pick up, and would correspond with the already-high implied volatility that is expected and reflected in more expensive options premiums in related trading instruments.
With large gains seen today in equity markets, any serious negative news about the Greece deal could see an equally-volatile or even greater move lower in the pair and equity-markets. A much longer-term view on the monthly candle chart below puts EURUSD at either 1.20 or parity by October (or much sooner if volatility is sustained).
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.1417 with a Limit to take profit @ 1.1470 and a stop-loss @ 1.1360 Risk/Reward Summary: Limit risk = +53 pips profit / (-57) Stop-loss risk = Gain to Loss ratio = 0.92
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.1299 with a Limit to take profit @ 1.1265 and a stop-loss @ 1.1334 Risk/Reward Summary: Limit risk = +34 pips profit / (-35) Stop-loss risk = Gain to Loss Ratio = 0.97
Medium term daily candle chart (Zoomed-in):
LONG TERM monthly candle chart: