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The EUR/USD pair attempted to rally on Tuesday, but fell short and formed a shooting star. The shooting star suggests that perhaps we are going to try the uptrend line or bottom of the rising wedge over the next couple of sessions. If that area gives way, there is absolutely no reason to think why this pair would fail to retest the lows.
We are bearish when it comes to the Euro, as there are simply far too many problems in that area right now. The 1.2350 level has acted as both support and resistance recently, and as you can see for the second day in a row we failed to stay above it. With this in mind, we are "selling only" in this pair, and looking for that opportunity. A break of the Tuesday lows is enough to get us to start selling, but we much prefer a break of the up trending line of the rising wedge in order to hold onto the trade.
The rising wedge isn't necessarily a pattern that we follow very often here, but when they are this obvious you must understand that the entire marketplace is aware of it. This is exactly the type of formation that you want to see as there are plenty of other traders out there willing to jump on the bandwagon with you.
It should also be stated that the 1.25 level is the epicenter of a massive resistance and that goes from 1.2 4 all the way to the 1.27 level. This area looks to be simply far too tall for the buyers of the Euro to overcome, as they are a mix of a short covering traders, and people who are buying on the latest hope or rumor.
With this being said, once the liquidity comes back into the market we shall see what the market really thinks. We are in the height of the vacation season, and as such the rise higher may have been a bit exaggerated. Because of this, we think that the Euro will continue to lose value over the next several months.