Technical summary:
As we said yesterday, a perfect rally of five wave has been seen from a low of 1.3880 and a correction should be expected. The first target to look for is a low of wave four of one lessor degree, which means wave iv at 1.4725, which also marks the 38.2% corrective target. So, we should expect strong support at 1.4725 and the bottom of wave (ii) is likely to getting ready for a strong rally higher in wave (iii).
Yesterday, we took a chance and sold EUR with a small stop. The market hit that stop for a small loss, but after having taken out 3 nice profits since a low of 1.3880, the small loss didn't hurt anything but our pride. However, there is a lesson to be taken away for us. You should never try to pick tops or trade against the trend before a turn in trend is confirmed. Well, we did both things and our pride was bruised a little.
It was very tempting trying to short this cross for a 365 pips gain and it still is, but it is likely to make a break below the support line of 1.5019 to confirm that the top is in place and a correction towards the corrective target at 1.4725 is unfolding. However, we do more risk and that is that this correction moves it to the 23.6% corrective target at 1.4924, which is also very close to the top of wave iii at 1.4903. There is a possibility that we only are in the middle of wave iii higher. So, we will resist the temptation to sell EUR and wait for a new buying opportunity.
Trading recommendation:
We will buy EUR at 1.4735 or upon a break above 1.5185 (one order done cancels the other) If the later target is hit, the stop will be place 10 pips below the most recent low (likely at 1.5009).
