The June Euro futures contract confirmed last Friday’s closing price reversal bottom with a rally through 1.2796 on Monday. Although this chart pattern could lead to a sizeable short-covering rally, traders should note that the main trend is still down and that the Euro is still susceptible to shorting pressure.
On May 18, the June Euro found support after reaching a new low for the year at 1.2644. The previous bottom was reached at 1.2645 on January 13. Typically, a closing price reversal bottom triggers a two to three day rally equal to at least 50% of the last break.
Based on the last break from 1.3287 to 1.2644, a retracement zone has been created at 1.2966 to 1.3041. A two to three day rally could mean a test of the 50% level at 1.2966 on Tuesday, May 22 or Wednesday, May 23.
Besides forming the closing price reversal bottom, the June Euro has also crossed to the bullish side of a downtrending Gann angle from the 1.3287 top at 1.2727 today. According to the Rule of All Angles, holding above the steep downtrending angle is likely to trigger a rally to the next downtrending angle at 1.3007 today.
This angle declines to 1.2967 on May 23. This means it will cross the 50% retracement level at 1.2966. This creates a potential resistance cluster at 1.2966 to 1.2967 on May 23, making this our best upside target for the week.
In order to square price and time precisely, the June Euro futures contract is going to have to rally sharply higher over the next two to three days. Unexpected news is usually the reason for a rally of this magnitude. Traders should watch the news carefully to avoid getting caught on the wrong side of a major short-covering rally.
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