Whenever a daily chart shows a nice pullback in an uptrend, traders often become wary when the weekly chart does not agree, as it weakens the case for the long trade. Today's trade does not have that characteristic, however, as the daily and weekly charts of EURCAD are hinting at a gentle pullback that favors buyers of the pair.
Candlestick enthusiasts will be able to identify a topping pattern on the below weekly chart, but for all practical purposes, it is weak. Last week's bearish price action barely burrowed half way into the white body of the previous week's candle, and thus, the preferred direction is still up.
Guest Commentary: Weak Pullback on EUR/CAD Weekly Chart
On the below daily chart, although a rising trend line has been clearly broken, it has not yet been retested, and so the next trading opportunity would be the anticipation of such a retest. Even if the break to the down side holds up, there is a potential 280 pips or more on the table, which could provide an excellent intraday trading opportunity. And, if it develops into a trend continuation, the potential would be even greater.
Guest Commentary: Pending Retest on EUR/CAD Daily Chart
The four-hour chart below shows some cause for caution in the form of bearish momentum. The fact that price has moved down very quickly with little sign of support suggests that a wider support area is required, and for safety, the zone of support has been estimated using two previous consolidation areas. This results in a zone of risk that is 137 pips deep, but even that is acceptable considering how far the trade could potentially move to the upside.
Guest Commentary: Key Support Zone for EUR/CAD Longs
The hourly chart (not shown) would provide the best entry for this set-up, which would be triggered on pin bars, bullish engulfing candlestick patterns, and/or bullish reversal divergence. Two or three tries may be required in order to gain entry, as the zone is rather deep, but if the move develops properly, this is a set-up that would prove more than worthwhile.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com