Eur/Usd Update

Hope everyone's having a good trading week so far. I've been so busy with work that I haven't had time to initiate any trades this week...just been watching/managing the trades that I already have on. One of those is the Eur/Usd short...I'm short around the 1.3050 level. The pair rallied this morning, which probably caught a few people by surprise. Here's a look at the hourly chart:As I noted on the above chart, the pair was probably due for a decent pullback rally after the big drop we saw earlier this week. Does this rally signify a reversal? No, not yet. So far it's just a healthy pullback rally that will probably help the pair consolidate and then move to new lows. What causes these kind of rallies? It's hard to say for sure but generally, traders get nervous after big moves and start taking profits. That profit taking often leads to stops getting hit and panic from people that sold at the recent lows. The selling from the stops combined with the panic sellers is often what is behind large and quick moves like the one we saw this morning...this situation also provides a nice entry point if you missed the first move.

To get a proper perspective of this morning's move, it helps to pull up the daily chart. Here it is:The daily chart shows that the pair is still in a bearish pattern. The stair stepping lower lows combined with the failure to make significant new highs tells me that down is still the path of least resistance. What should we be looking for to determine if the move higher becomes significant. To start, a daily close above 1.30 (approximately Monday's high and Sunday's low) would be worth paying attention to and then follow through and a close above 1.3150 would be a sign to cut the shorts and run. The key, as always, will be the follow through in price action. If this morning's rally fails to continue, the pair will certainly move lower.

Only time (and price action) will tell.

TLT