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Is the EURGBP starting a reversal?
For the first time since mid August of this year, the EURGBP is showing a possible pullback as its batman like bulletproof armor bull-run may have taken too many straight shots in the chest to keep plugging away. Keep in mind this is only the third time this pair has climbed 800+pips in sub 60days over the last 3 years.
This pair has really benefited not so much from EURO strength, but moreso the Pounds masochistic desire to be sold into oblivion. The plague probably had more friends back in the day then the GBP currently does in its native country. The most likely scenario has been a Quinella of GBP weakness and seriously interested EURGBP longs.
However this trend current upmove cannot go ad infinitum, very much like Michael Jordon could not play basketball forever (something this trader is somewhat sad about). Be that as it may, finding good pullbacks has been like a first time chopstick user trying to get the last few grains of rice in the sushi bowl (forgive the sushi reference, my dinner arrived while I started writing this article) – tis not an easy thing to do.
Looking at the chart below, the last pause (last three red candles on chart below) was a pretty recognizable pullback-continuation scenario as the follow up blue candle obliterated the last three amigos and handsomely breezing past the 61.8% fib of the 9500 – 8400 downmove. However this last daily candle is most intriguing as the wick and failure to the topside is as large as the entire previous pullback. Buying anywhere in between the close of that candle and the top would be a highly risky move, so it begs the question of buy on break or wait for a dip? Although trading breaks has worked out quite well in this current trend, the previous ones looked more like a 3rd-and-1 while the current one looks like a 4th-and-4 (not as inspiring).
Thus, this trader would be in favor of punting and waiting for a pullback toward the previous 61.8%fib which proved a moderate resistance before holding for 3 days. Alternative plays would be 9000 (where the last pullback held) or to a 20EMA touch (has not been broken since mid-august).
Some clues as to whether these will hold could come from the GBPUSD and if it can actually muster some upside going unnoticed by the EURUSD having a picnic at the local plaza. However, the manner in which the EURGBP sells off (if it does) would be the best clues. A violent sell off or any brutality shown towards the current medium/long term bulls today or tomorrow could be an indication the first defenses may not hold, thus requiring the 20ema or Kijun to come into play. A close below all three of the lines would suggest the party is over for now and to wait till the 8830 level before re-building longs.
Either way, the test for the current bulls should be made clear in the next two days but medium to long term, we favor being long EUR over GBP for an eventual test of 9500. The only thing which would negate this view for us would be weekly close below the 8700-8650 support zone. One alternate scenario which would negate the bullish view would be a daily close below the Kumo. Until then, we feel any playful dips are really the bulls working on a fresh coat of paint for the coming winter and anyone putting on heavy shorts would be suspect of gargling with hydrochloric acid.
Chris Capre specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and has an Advanced Ichimoku Course for further training.
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