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).
The material has been provided by InstaForex Company - www.instaforex.com