Daily Outlook: We hope everyone enjoyed there three day weekend - back to the markets! Last week was an incredibly bullish week, rising almost 570 pips from low to high and completing a bullish engulfing candlestick on the weekly charts. We continue to view this bullish action as a correction (and not the start of a larger uptrend) as long as the price stays below 1.3500 on the daily closes, and will look for an opportunity to establish a longer-term position below 1.35 on a good entry setup.
There is a falling trend resistance line that we are watching very closely as price action is currently right on top of it. On the daily chart connect the closes of Dec 13th and Dec 31st to see it on your chart. We view a DAILY close above this level as bullish, and any piercing wicks (but a close below) as bearish. On the 4h chart the resistance is up a bit higher, because the closes have been higher, and 1.3400 is the key short-term resistance we are watching. While we have had a few piercings above 1.34 on the 4h charts there has been only one close above this level in the past 30 days, and that close was in very thin holiday markets and only lasted a few hours.
Trading Idea: Primary trade is a short with candlestick confirmation around 1.34 resistance with targets at 1.3375, 3350, 3320, 3280 and 3250 for 150 pips profit. Longer-term traders may wish to hold for 1.3180 (the 50% retracement of the recent major bullish move) or further.
If we see a sustained topside break to 1.3400 then that immediately opens up the possibility of a 1.35 re-challenge and we will look to gather some quick long pips off this break scenario.
Finally an aggressive short would be on a sustained break below 1.3250 (not likely to happen in the London session) with targets down to 1.3180 and 3100.