Decent Long-Term Sell Signal on an Exotic Forex Instrument

That instrument that we are talking about is EURCAD and we can spot here a beautiful trend reversal pattern – head and shoulders, which is already active. As we can see, since the second half of the 2015, the price created a H&S pattern (green areas), which ended in the November with a bearish breakout. The price broke the neck line (both: black line and an orange horizontal area), which triggered the sell signal.

After the breakout, as it usually happens, the price retraced some of the downswing and tested the neckline as a current resistance. The test was positive for sellers and the price created the shooting star candlestick formation with a long head bouncing from the neck line )red rectangle). That can be considered as a strong sell signal and it was read by the traders exactly in this way. The price aimed south and attacked the lows from the whole 2016 (purple). We can see that this area is still under the heavy pressure and chances that it will be broken soon are relatively high.

EUR/CAD Chart
EUR/CAD Chart

There are a lot of factors supporting the short side of the market: trend (lower highs and lows), technical formation (H&S), candlestick pattern (shooting star) and a resistance (neck line). This significantly increases the odds for a downswing. The first target should be the bottom blue line, which is a long-term support here. To this area we do have around 300 pips, which can be a good catch for mid and long-term traders.

When entering this trade, keep in mind that on Wednesday we do have a BoC rate decision and on Thursday the same from the ECB. This complicates the situation a little bit but on the other hand, this setup is long-term, which protects us from the short-term spikes in the volatility.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis