In my previous post, I argued that the Euro may go all the way down to 1.26. Well, it came down 25 pips short of that target. Anyhow, the intermediate down trendline (IDT) is broken and the near-term future is looking up for this pair. Overall, this pair may move as high as 1.3175 but keep in mind that when trendlines are broken, the security may simply consolidate instead of rallying. In other words, it may fail to go past 1.30. This is the risk to be aware of.
The road ahead is fraught with obstacles. There are three very strong resistances that stretch back to 2009. As you can see, in spite of their age, they acted as a strong support on the way down. Now, you can expect them to act as strong resistance on the way up.
Second, according to the COT report, there are record amount of Euro shorts out there. So, at least part of this move, if not most, can be attributed to the short squeeze. I think the squeeze ain't over yet. Therefore, the first resistance at 1.2910 is unlikely to hold for very long.
Strategy: it is safer to play longs especially putting on longs during dips. Longs on breakouts can be difficult to trade though. One way to play the long side is to buy the pair when it comes back to test the IDT. Another way, if you are conservative: wait till it tests the IDT, then buy as the pair rallies back up above previous/recent swing high. As I write, the recent swing high is the 1.2910 resistance. Alternatively, if you bought at a test of IDT, you ADD to your position above previous/recent swing high.
Once long, the outline of a plan looks as follows:
I am expecting back and forth action between resistance lines with an overall upmove, so the plan essentially involves buy low/sell high and vice versa. Thus, close your longs once the pair hits the next resistance at 1.2983 (I am assuming that EUR breaches 1.2910 resistance). Then reverse/short - 50 pips profit target is achievable. Then, reverse/long at or above 1.2910 (I assume it holds) to play for the possible breakout above 1.2983/1.30 towards 1.3175. At 1.3175, if seen, you short again and this time downside move should be more than 100pips if not more? Keep in mind, the whole correction may actually top at 1.2983/1.30. I will update as we go along.
Alternatively, observe cross rates: EURGBP, EURJPY, EURCAD, EURAUD and EURNZD. You will see good action in those pairs as well. In particular, I like EURCAD and EURAUD longs.
The road ahead is fraught with obstacles. There are three very strong resistances that stretch back to 2009. As you can see, in spite of their age, they acted as a strong support on the way down. Now, you can expect them to act as strong resistance on the way up.
Second, according to the COT report, there are record amount of Euro shorts out there. So, at least part of this move, if not most, can be attributed to the short squeeze. I think the squeeze ain't over yet. Therefore, the first resistance at 1.2910 is unlikely to hold for very long.
Strategy: it is safer to play longs especially putting on longs during dips. Longs on breakouts can be difficult to trade though. One way to play the long side is to buy the pair when it comes back to test the IDT. Another way, if you are conservative: wait till it tests the IDT, then buy as the pair rallies back up above previous/recent swing high. As I write, the recent swing high is the 1.2910 resistance. Alternatively, if you bought at a test of IDT, you ADD to your position above previous/recent swing high.
Once long, the outline of a plan looks as follows:
I am expecting back and forth action between resistance lines with an overall upmove, so the plan essentially involves buy low/sell high and vice versa. Thus, close your longs once the pair hits the next resistance at 1.2983 (I am assuming that EUR breaches 1.2910 resistance). Then reverse/short - 50 pips profit target is achievable. Then, reverse/long at or above 1.2910 (I assume it holds) to play for the possible breakout above 1.2983/1.30 towards 1.3175. At 1.3175, if seen, you short again and this time downside move should be more than 100pips if not more? Keep in mind, the whole correction may actually top at 1.2983/1.30. I will update as we go along.
Alternatively, observe cross rates: EURGBP, EURJPY, EURCAD, EURAUD and EURNZD. You will see good action in those pairs as well. In particular, I like EURCAD and EURAUD longs.
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