At one point yesterday, I thought I was dead wrong on my view!! Good thing I stucked to my game plan and placed my stop below 1.2240 and stayed away from my desk. See, that's how I deal with the emotional aspect of trading! :)
After triggering a good amount of new sell stops, from the macro guys, below 1.2270 on Wednesday, E$ went for another batch of new sell stops, from the system guys, below 1.2260 to touch 1.2256 low on Thursday before the squeeze begun during the NY session. Of course the market attributed the E$ rally to the weaker US data and Merkel's reiteration of their pledge to save the euro. The move picked up steam as those shorts scrambled to cover their positions. E$ peaked at 1.23725 and started its consolidation till now.
Last update on existing stop orders revealed the following: 1.2150, 1.2240, 1.2380 and 1.2450. Nearest being 1.2380 will sure stick out.
Technically, intraday indicator has gone into o/b levels but not extreme. Intraday momentum continues to suggest consolidation with no directional implication. Looking at the chart below, it does look like E$ is comfortable to just consolidate further until it reaches the apex, probably next week. However, on the daily chart, yesterday's price action has formed a bullish engulfing candlestick with a strong close above support levels. Having taken everything into consideration, my highest probability scenario is that E$ to spike another round to take previous high 1.23856 out and then reverse to fall towards 1.2280/300 support, stronger at 1.2240/50. Resistance 1.2400/10 and stronger 1.2440/50.
Therefore, risk/reward favours selling into rally. Breaking either 1.2443 or 1.2241 confirms near term trend.
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| E$ 8hourly chart - Range tightening |
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