A fundamental shift driven by U.S. data, political events in Europe, generalized LTRO aftermath as well as continuous bleeding of uncertainty regarding Spain has dropped support for the Euro, as with global risk overall, and created a pattern widely recognized by traders across the globe.
I've read a lot these past few days about this pattern, and most of it flat out bothers me. Ignorant articles seeking the demise of this pair based on very weak conclusions derived from the most basic concepts in trading price patterns. There is no doubt why so many are written in this way. Even a simple Google search for descending triangle brings up heaps of results labeling it as a continuation pattern. This is 100000000% incorrect and overall a very a naive and dangerous assumption.
Rule number one with trading price patterns is to never associate them with an immediate direction in terms of subsequent follow through. Every single one of them fails at some point, and these fail about 45 % of the time, if you follow the conventional wisdom that they “continue”.
Regardless, the underlying reasons to maintain the “sell”: is compelling, though I wanted to bring to light a couple of different things.
On a decisive downside breakout, I would set an initial target in the high 2800's. This is a little more than half of the range and would stretch to fill gaps created on this last move higher. A secondary target wouldn't be too far away in the high 2600's (see chart for markup).
I like to see low volatility ahead of breaks on these. This usually allows enough time to pass and muster enough courage for traders to go ahead make the call, so to speak.
A pullback up into the range again will no doubt stir a mess. After (if we get it) a 50% pullback of the last leg (3110's), watch your trendlines. This market has gone up, down, side, etc., for the past year. I've left little on the table in terms of longer term conviction and have been basically ready for anything.
The media seems to think we're in a phase of disaster after last week. Damn you media, and everything you do to people.
