11/01/2007

EUR/USD Short Opportunity (Update)


Price action on the EUR/USD is too choppy and overlapping (i.e. the decline has only occurred in 3-wave) to be the start of a bearish trend, in my opinion. However, I do expect another leg down to complete a WXY correction from 1.4503 high. I will close 1/3 of my short position near the triple support level of 1.4375 (Wave4 low, 38.2% retracement of 1.4125->1.4503, and WaveY=WaveW).

I also plan to move my stop to above the WaveW low (1.4403). Why? Suppose the decline from 1.4503 is the beginning of a bearish trend. If we consider 1.4403 to be the Wave1 low, then theoretically a correction of the following Wave3 should not overlap Wave1. If it does, I know the decline is corrective and therefore I get stopped out quickly with a small profit. On the other hand, should I be right about the larger downtrend, and Wave4 does not overlap Wave1, I remain in the trade with a large profit.

Fundamentally, the dollar has a chance to strengthen tomorrow because many indicators point to strong payrolls. Should this be the case, I wouldn’t be surprised if buyers stepped in after a drop on the EUR/USD due to central bank buying.

No comments: