Daily Outlook: I get a sinking feeling every time I go long in this market as the long-term trend is down, however for my day trading I have to go with the direction of the shorter-term trend and this short-term trend is definitely bullish.
We just closed out a bullish head and shoulders pattern on the daily charts, the pair continues to make higher highs and higher lows and we may have just entered a bullish channel (see thick blue bars on chart).
Watch out for Eurozone economic numbers on the forex calendar tomorrow.
Trading Idea: The bottom of the bullish channel offers some good risk/reward setups with the support currently between 1.2500-1.2530. From 1.2515 targets would be 1.2540, 1.2570, 1.2600 and 1.2630 for 115 pips profit. A close below 1.2470 on 4h chart negates the trade (this is also where I will look to hide a stop).
Beyond that the most conservative trade would be to wait for a pullback to the 1.2400 support with targets up to 1.2600 for 200 pips (good risk/reward setups off this level).
The most aggressive trade would be a long off of 1.2570 as this is the neckline area of the head and shoulders pattern. A close below this level on the daily charts indicates the neckline breakout was false and the head and shoulders signal was invalid.