On August 16th we looked at a rising wedge that had formed on the EURGBP 4-hour chart. At the time the pair was trading at 0.9104 and hadn’t yet broken free from the ascending pattern.
Fast forward to today and we can see that the Euro cross is trading above former wedge resistance. Buyers closed the pair above the level during the August 23rd session and subsequently held their ground during the August 24/25th retest as new support.
Despite last week’s breakout, I didn’t consider going long. One of my rules is to avoid buying into bullish exhaustion patterns or selling into formations that suggest bearish exhaustion.
The reason for this rule has everything to do with the potential for false breaks. In my experience, a break like the one we saw last week on the EURGBP has a 50/50 chance of being a false break. That’s a pure gamble which is enough to keep me on the sideline.
Moreover, Friday’s high tested the upper boundary of a new ascending channel that extends from the May low. The resistance area shown in the chart below is yet another reason I’m not interested in buying the pair at current levels.
I’m going to stand aside for now and wait for a favorable opportunity to present itself. Bearish price action near 0.9270 would be appealing, but former 4-hour wedge resistance at 0.9210/20 wouldn’t allow for a favorable risk to reward.
On the other hand, a close below 0.9210/20 would indicate that sellers are beginning to take back control. However, the highest probability setup would be a close below the 0.9144 handle in my opinion.
For those interested in going long, a pullback into 0.9144 or perhaps channel support near 0.9000 would be worth a second look.
Want to learn how I trade price action? Watch the Free Webinar