We’ve been tracking several head and shoulders patterns over the last few weeks. First was the GBPCAD that confirmed during the July 26th session. The pair is currently down more than 400 pips since that break.
In fact, if you go back to the June 22nd bearish pin bar, the GBPCAD has declined by nearly 1,000 pips. That was the first mention of the topping formation.
Then there’s the GBPAUD. I pointed this one out on Monday, and the pair confirmed the 1,200 pip reversal pattern just a few hours later. You’ll also notice that the pound cross just retested former neckline support as new resistance.
The EURAUD is another cross that appears to be setting up for a massive reversal. Although the pair is lagging behind its pound counterpart, sellers just defended the 1.5700/20 resistance area I discussed two days ago.
As you can see, there has been no shortage of big moves lately. And not just in terms of pips, but the implications of these confirmed patterns cannot be understated.
Another pair I’ve had on my radar for some time now is the EURCAD. Apart from a EURUSD short I put on last Friday at 1.1600, the EURCAD is the only pair I’ve traded since late June.
The first entry came back on June 25th at 1.5580 which I announced in the member’s area. I’ve since added to the position at 1.5300 and again this past Wednesday following the rejection from the confluence of resistance at 1.5150.
But if you’re thinking the EURCAD has run its course, you may want to reconsider. A view of the price action since last November shows a pattern similar to that on the GBPCAD. No surprise there given their similarities.
If this is indeed a head and shoulders reversal, it could set the pair on a crash course to the 2016 and 2017 lows near 1.3800.
Now, it’s important to keep in mind that even if the pair does move that far south, it won’t be a smooth ride. There are bound to be several bumps along the way including but not limited to the 1.4740 area and especially the 1.4500 handle.
It also won’t be quick. Even a move to 1.4500 will likely take another month or two to play out, so you can imagine how long it might take for sellers to reach 1.3800.
For now, it’s going to take a daily close (New York 5 pm EST) below neckline support at 1.4960/70. Without a close below this area, the head and shoulders reversal will have to wait.
As always, there are no guarantees. The above does not mean the EURCAD will drop to 1.3800, 1.4500 or even 1.4740. As traders, the best we can do is determine what’s probable and then establish and follow a game plan to take advantage of the outcome.