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EURUSD at Risk of Larger Pullback on Bearish Engulfing Pattern

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One thing I like to do between Friday and Saturday is to check my weekly charts. Although I do most of my trading on the daily and 4-hour charts, the weekly offers a “big picture” view that you simply can’t get on a lower time frame.

In addition to being able to see the road ahead more clearly, a higher time frame can offer hints in the form of candlestick patterns. These can range from a pin bar at a critical level, an inside bar amid a strong trend or even an engulfing pattern at a swing high or low.

For EURUSD, it’s the latter. A look at the weekly chart going back to 2014 shows two bearish engulfing candles. The first one formed nearly two years ago and marked the last gasp before the infamous 3,500-pip selloff.

The second is in its final hour of materializing.

EURUSD weekly chart showing engulfing patterns

Note that I am only concerned with bearish outside candles that formed at swing highs. An engulfing pattern that emerges mid-trend doesn’t do us much good.

Now, I’m not insinuating that we are on the brink of another 3,500-pip drop (although anything is possible). However, a bearish pattern such as this should be a concern if you’re long the Euro or thinking of buying next week.

But despite the telling nature of this price action, it isn’t enough to form an actionable trade idea. For that, we turn to the daily chart, which I mentioned earlier in the week.

With the pair now below the 1.1340 handle on a weekly closing basis, traders can begin watching for sell signals on a retest as new resistance. An increase in selling pressure from this area could trigger a move toward the next level of value at 1.1210.

On the other hand, if the Euro is set to continue its surge higher and manages to close a session above 1.1340, we could see a retest of former channel support near 1.1500.

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EURUSD key levels on the daily chart

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2 comments
Solomon Olusegun Oyeniyi says

Justin, I have the same analysis as you do.Thanks

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Nicholas Robinson says

Hi Justin,

Appreciate all the top work and effort of giving back to the trading community that you do.

Is it possible to do a breakdown on gbpnzd? The pair has me abit stumped of late.

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