The price action for this minor pair on the daily time frame is exciting as it draws parallels to the story of Covid-19 in-terms of overall market direction and psychology. As the strength of the Euro traced the levels of fear and panic surrounding the pandemic thus far in 2020, it’s developed into a classic U shape move, otherwise known as a Cup & Handle pattern in technical analysis.
Cup & Handle Pattern Explained
This trading pattern can occur when the price of an underlying asset experiences a sell-off, followed by a steady consolidate period, followed by a rally of approximately equal size to the prior decline. This type of market move creates a U-shape or the “cup” in the overall cup and handle pattern. The price will then typically move towards a downward channel—forming what appears to be the handle.
On today’s Chart of The Day, you can see this pattern on the EURCAD chart above. Click on image to enlarge.
Generally speaking, to find a potential upside target, we would measure the depth of the U-shaped section and apply this distance to the upside. In this instance, should price action confidently break resistance around the 1.60 regions, then longer-term, we could have the potential for a sizable move higher as the U-shape distance is approximately 900 pips.
A longer-term target of in the region of 900 pips may seem unlikely, but given the pair moved almost double this amount in precisely one month between the Feb 19th low of 1.4263 and the March 19th high of 1.5991, then it may well be in the realm of possibility for the EURCAD.
In the shorter-term, we’ll be keeping a close watch on the development of the current downward channel for signs of more bullish activity and breaks to the upside. Current price support for the pair appears to be stable around the 1.55 levels or at the height of the consolidative range.
Sources: Go Markets, Meta Trader 5, TradingView, Bloomberg
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