On Monday I sent you some commentary comparing several euro pairs. We looked at EURUSD, EURCAD and EURAUD. Our conclusion was that the best pair to go long would be the EURCAD. The best pair to short would be the EURAUD.
Well, we got a trade. Here is my commentary from Monday on the EURAUD to jog your memory:
Now this is really interesting if you’re a technicals geek like me. All three charts have similarities, but while the EURCAD and EURUSD have managed to break above important resistance, the EURAUD hasn’t.
If this chart was as strong as the other two, price would be trading in the area I have drawn in by the grey dashed lines.
So out of the three, a EURAUD long is the poorest choice. The converse is also true and very valuable.
Let’s assume that the EURUSD collapses (we do have a US rate statement on Wednesday) and never sets us up for our long. Instead, our attention turns to the short side. If the EURAUD was the poorest choice to go long, then it’s the best choice to short!
Fast forward 24 hours and by Tuesday afternoon, the pair had setup a very interesting formation on the 4-hour timeframe:
We now had three good reasons to short:
1. A weak pair
2. Resistance on higher timeframes
3. Bearish head and shoulders on the 4-hour
And as an added bonus, our first target had better than 1:1 reward to risk. Short!
If you missed this short trade, you may get another shot. The daily chart this time:
Price is challenging the channel low and might be about to form a new right shoulder on the daily timeframe, setting up a much bigger sell opportunity. Let’s keep an eye out.