EURUSD: Waiting to Re-Enter Short Position.

Strategy: Pending Short

We entered short EURUSD at 1.2556 as prices put in a Bearish Engulfing candlestick pattern below resistance at the top of a Rising Wedge pattern carved out since late July. Prices narrowly triggered our stop-loss with a daily close above 1.2588 on yesterday’s candle, yielding a small loss (-42 pips).

Overall positioning still appears ripe for a downward reversal, with prices continuing to hover below Wedge resistance. That barrier is reinforced by the top of a long-term channel set from late-August 2011 while negative RSI divergence reinforces the case for a downside scenario.

With that said, a clear-cut entry signal is absent and the upcoming ECB rate decision creates a major event risk overhang that could materially change the setup. We will stand aside for now and allow positioning to develop before re-entering short.