Recommendation: SHORT-TERM BUY/SELL SHORT AFTER RALLY

Current Trend: Short-term down. Med-term sideways. Long-term sideways to up.

Strategy: Buy at current levels, then sell short after a rally to 1.1855-1.1885.

 (Daily)

Chart Setup: The euro has given a bullish reversal candle from line 4 on Friday, which should start a short-term rally. There is also a small falling wedge (blue lines) in place now, which is a bullish pattern. So, I'm looking for a minor rally, and then another leg down to its downside target from a head and shoulders (H/Sh) top, to 1.1595.

• Its short-term Stochastic is giving a positive divergence from its oversold region, warning of a rally to come.

Strategy Details: Go long at current levels. (A more conservative buy signal is a close above the wedge, blue line of 1.1755).

• Thereafter sell short a reversal day/candle down from the 1.1855-1.1885 zone.

Target: A short-term rally to 1.1855, based on the small wedge.  There is resistance above there at 1.1885. Thereafter, down its downside target of 1.1595, based on the H/Sh.

• One concern here med-term is the euro might be forming a med-term H/Sh top, with the rally to come forming its right shoulder. This is something well be monitoring closely; because if this is the case, then the euro will fall a lot further over the med-term (potentially to 1.1300). 

Stop-loss: For buying, stop is a close below 1.1650. Then use a breaking of its prior one-day low from 1.1830. For shorting after the rally, we’ll update with a stop, but offhand a close above 1.1955 initially.

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