While our analysis is as bearish long-term as anyone's on the Euro, it is likely time to back off from selling intraday rallies, in anticipation of a short-covering correction higher. Our benchmark, or method, for determining which market to trade and which direction to trade it from is actually mechanical, so there is no subjectivity in this area for individual markets. Currently the Euro is solidly bearish on its Day to Day Pattern, albeit sitting on Secondary support - the 50% retracement level of the 6-month up-move. See Figure 1. We respect market correlations however and see negative interference for the EURUSD down-move from strength in the AUDUSD. This combination of the Euro on support, with AUDUSD now in a position to challenge the yearly high just below 1.06 increases the likelihood of a short-term bull move in EURUSD

Figure 1.

Technicals aside we also respect ECB boss Draghi and understand he will continue to do what he has to do to prop up his currency, not to mention we see Cyprus as a proverbial "blood in the streets" event, yet it is weekend and the Euro is actually higher from where it opened Sunday. We see this lack of bearish follow through as a concern for shorts. Current longer-term Euro shorts may want to consider having buy stops in place just above 1.30.

We do not however, recommend considering long positions. If the Euro rallies it would be a counter-trend move. By definition counter-trend moves always start out by going against the fundamental grain. And we by no means see a change in those bearish fundamental conditions. Our concern is that too many players may be leaning short which makes us nervous of a short squeeze. The reason we would not risk going long is because of the possibility of a replay of last Sunday night's gap lower opening. We are still interested in selling rallies in the Euro, just bigger rallies.

Jay Norris is the author of The Secret to Trading Forex, Futures, & ETF's: Risk Tolerance Threshold Theory. To see Jay highlight trade set-ups and signals in live markets every Monday and Thursday for free go to: Live Market Analysis.

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