Currency Pairs with the Most Reversal Potential

The AUDCHF uptrend has done a pretty job this entire year. Ever since the currency pair built an inverted head and shoulders reversal chart pattern (and ended the downtrend), the AUDCHF has been consistently building on higher highs and higher lows for a well established daily chart uptrend.

BUT… there are signs of danger for the continuation of this uptrend and a reversal could be hanging in the air. As a detective working in the field, let us review the clues:

  1. Price is reaching a major resistance zone (indicated by the 2 red lines)
  2. Price has respected all of the Fibonacci levels (orange Fib)
  3. Price is building a rising wedge reversal chart pattern (orange and lighter green trend lines)
  4. Double and potentially triple (!) divergence is present between the daily top
  5. Price action movement is slowing down and moving with less momentum to the upside

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These are decent reversal signals and the uptrend could seriously struggle due to them. In trading there is no guarantee but the odds are not in favor of a strong uptrend continuation unless price breaks above the 88.6% and top (highest red line).

The confirmation of a reversal indeed taking place is when price is able to break below the support levels such as the trend channel bottom (light green line), the support line (dark green) and the horizontal support (blue). A break of those levels could see the AUCHF moving down quickly towards bearish targets (purple levels).

2ND PAIR: GBPCAD

Contrary to the bullish USDCAD analysis yesterday, the GBPCAD is providing us a totally different perspective. The GBPCAD almost broke out to the upside but luckily we warned you to be cautious and review the weekly chart to measure whether the breakout was sustainable or false (read here).

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Now the GBPCAD is in fact breaking to the downside, instead of the upside. Things can change ultra fast in the Forex. The triangle formation (red and blue line) lasted for ages (160 trading days), which means that the breakout could be massive.

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To see the enormous potential of a downside break, a trader only needs to zoom out to the weekly chart. Often traders say: what goes up, must come down. The saying works extremely well for the GBPCAD weekly chart, which had an enormous rise, but could now be facing a dazzling fall. The wide open space is there, although a trader never knows what price will actually do.

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A good place to look for a short entry (blue circle) is the pullback to the broken support level. Broken support often turns into resistance. Also, a broken trend line or level usually gets retested before a trend really starts to speed up and move away from the breakout zone. The stop loss should be above the breakout top (red circle).

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Let us know your views on the market here down below!

Thank you for sharing and wish you all Happy Trading

 

 

 

 

 

 

 

 

 

 

 

 

 

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).

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  • Chris

    Thanks for the feedback! Yes it certainly is indeed – especially with reversals. :) those things can take their time.

  • Edith Helwegen

    Looks good to me. Patience is the answer :)