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The euro / dollar staged a rally to 1.2850 today in what many are proclaiming as the beginning of a larger bull move.  The Wall Street Journal states that "ECB Rate Cut Supports Euro".  The pattern suggests to me that today's rally has a high probability of being fully retraced.  Keep this in mind with event risk (NFP) tomorrow.  A rally above 1.3085 would negate the bearish outlook.

Tomorrow is the first Friday of the month, which means that currency traders all over the world are anticipating the release of the US employment report.  What might the reaction be?  First, I’ll take a look at the daily chart in order to identify the underlying trend.  Under my preferred wave count (the count that I see as most probable), the EURUSD is at the very end of a triangle correction as a 4th wave.  The next move should be down, in a drop well below 1.2330.  Triangle resistance crosses 1.30 tomorrow.  This bearish outlook is valid as long as price is below 1.3080.  

If you have been following the Daily Technicals, then you have been on top of the triangle pattern, which has been unfolding for over a month now.  This morning I wrote that “if a triangle is underway, then wave e is underway now (possibly complete at 1.2772) and will end as a spike above 1.2772.  Resistance begins at 1.28 and extends as high as 1.30.”  It is unclear whether or not a top is in at 1.2848.  A short term reaction to the NFP release tomorrow could certainly result in a push through that level, possibly even 1.30.  If that happens (1.30), then bears have a golden opportunity against 1.3085.  Regardless, the bias is bearish now, against 1.3085, and the target is below 1.2330.  

The sub-waves, all in 3’s, strongly suggest to me that the triangle interpretation is the correct one.  Keep in mind that I consider the outcome I have described as a high probability but that does not mean that it will necessarily play out.  Risk controls are always paramount.   

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals  every weekday morning (9 am EST), COT Analysis (published Monday mornings), and analysis of currency crosses throughout the week.  He is also the author of Sentiment in the Forex Market.

Contact at jsaettele@dailyfx.com

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