The U.S. Dollar’s bounce from the 77.00 level today as ECB Press Conference drove the EUR/USD sharply lower and the better-than-expected Unemployment Claims number and ISM Non-Manufacturing PMI helped boost the dollar, has been stronger than most expected, especially when considering tomorrow’s Non-Farm Payroll release.
Trichet’s lack of hawkishness was the main culprit, in my opinion, for the EUR/USD’s sell-off. But remember that the Directional Bias of the daily remains up so today’s dramatic move lower remains a correction and not a sell-off. However, swing buys that I was watching for have been broken and reversed triggering Wave Reversal entries short. Wave Reversals (also referred to as a Wave/CCI) are often triggered on failed swings. So when you find yourself on the wrong side of a trend reversal, consider if the Wave has been broken (as in the case of today’s EUR/USD, to the downside) look for a negative -100 or greater reading from the CCI to confirm the short sell. Consider that the swing buy is invalidated as prices lose support three to five pips below the bottom line of the Wave.
Since the Directional Bias is bullish, remember that short entries would be best taken on the five, 15, and/or 30-minute time frame which are all (currently) moving lower at a “four to six o’clock” angle. Therefore corrections of the intraday downtrend could be shorted into as prices reach the 34EMA Wave. However for moves like what we’re seeing today, I will also look for more shallow – which is aggressive – levels to short from like 23.6% or even 38.2% Fibonacci levels as well as the 20 period simple moving average. These “aggro” levels are best suited for days like today where the price action has created a large gap between current trading levels and the corrective level of the Wave.
The dollar’s rally is at the heart of why the corrections are so much more significant that what we’ve seen recently.
Today’s move has carried the greenback from 77.13 to the (current) high at 77.99 which indicates that selling pressure is waiting (as would be expected) at the 78.00 major psychological level. The pullback from 78.00 is giving the EUR/USD breather and seems to be establishing near-term support at 1.3628.
If the EUR/USD can set up a late-day rally and the Dow Jones tries to move into positive territory and challenge 12,050, look to capitalize on this move on the five-minute chart with the “Between the Greens” strategy – which will make longer term bullish expectations for today unnecessary. The daily chart has reached the 23.6% Fibonacci Retracement from the January 10 low to the February 2 high. This support level is likely to be bought into and that’s why I do not want to take positions on anything other than a five-minute chart. If the U.S. Dollar continues to be pressured at 78.00 this would be a excellent opportunity for EUR/USD bulls to establish a long position.
The cable has not been immune to today’s rally in the dollar. The 240-minute chart has triggered a trend-following swing buy off the support of the 34EMA Wave as prices have slipped through 1.6200. With the Directional Bias still bullish, this 240-minute chart provides a longer-term intraday play for candle bulls just taking advantage of the dollar’s correction within the overall downtrend.
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