The EURUSD drop below 13390 makes the rally from 13266 a definitive 3 wave structure, which is bearish going forward. The only possible bullish outcome at this point would be from a flat (which has subwaves 3-3-5). 13400-13440 is potential resistance and an area to establish short positions against 13545.

I remain bearish EUR, AUD, and the S&P 500, but short bets on those haven’t exactly worked out recently. Indeed, I think all stand to lose against the US Dollar but markets have far more patience and remain irrational far longer than I can maintain margin in my account. My sole position at this moment is September Puts on the S&P 500 that are well-underwater and have relatively little chance of finishing in the money. Given that I remain so bearish but unwilling to put on trades, I’ll stick to System Trading currencies for now. My systems bias remains unchanged--I favor Momentum1, Momentum2, and Breakout2-styled systems from the DailyFX trading signals page.

Euro-based activity has picked up significantly with the return of European liquidity and renewed concerns over the effectiveness of the EU / IMF bailout plan for Greece. New to the already considerable probability that the member economy would struggle to find funding and possibly default is an unconfirmed story that Greece would not take IMF loans in the event of a crisis as they would be too expensive. Realistically, while European officials have not drawn up specifics on what rate they would lend at, there is a good chance they would be just as prohibitive. Besides, the only reason Germany and many others agreed to a tentative bailout plan for the ailing economy was on the basis that the global bank would be a part of the effort. Not accessing the IMF would likely preclude German involvement; and that is the member with the money. This is still something of a distant threat for the short attention span of the market; but it has helped undermine the euro. There has been notable progress in its declines against the US dollar, the pound, the yen and commodity bloc. However, I do not like jumping on such mature trends as EURCAD and EURAUD so late in the game. EURUSD is still moving within a range and EURGBP is struggling to maintain a consistent direction. The one pending opportunity is a possible hold and reversal at 125 for EURJPY; but that will take time to confirm.

As for my existing positions, I have a mixed bag. My AUDUSD short has been pushed to the edge with last nights RBA rate hike; but it still has not broken. I’ll keep the stop in and let it perform; but it looks like a high probability that this position willl be stopped out for a loss. In contrast, a short NZDUSD trade I jumped in on yesterday’s wedge break has moved into the money. An initial target of 0.6925 and stop of 0.7075 should be reasonable if there is follow through to be found. Another new setup is my AUDCAD short that triggered with the rebound to 0.9260 after a very long-term wedge breakout. The next essential step is for this pair to drop below 0.92. Should this happen, we have a much larger reversal under way. And, my best performing setup this morning was the short GBPJPY established yesterday. A first target above 140 may be somewhat aggressive; but I am willing to take my time and move my stop up to protect profit.

I initially sold EURUSD at 1.4881. Last week, the pair recovered to re-test the upper boundary of a falling channel set from the swing top in mid-November 2009. A Dark Cloud Cover candlestick formation below this boundary seems to have marked the beginning of a return to bearish momentum  and I will remain short, targeting 1.3191. A stop-loss will be triggered on a daily close above 1.3851.

The Euro is back under pressure as signs emerge that the Greek bailout agreement is starting to unravel. Greece is trying to amend the agreement in order to avoid seeking IMF aide and the restrictions that accompany it. Meanwhile, Germany is reportedly at odds with its euro-zone partners over the interest rate to be charged on any country-to-country loans to Greece. As I said last week I still see potential to 1.3000 for the EUR/USD. The pair’s failure to test the 50-Day SMA kept me short the pair as I raised my stop to the technical level. Support may come at the yearly low of 1.3267, or just below as a potential declining channel could be developing.

The EUR/GBP bounces back on Tuesday to reach a high of 0.8858 during the overnight session, but the lack of momentum to cross back above the 200-Day SMA at 0.8870 may lead the pair to fall back below former resistance around 0.8800. As a result, I will maintain the short from 0.8914, but may look to close the position ahead of the Bank of England and European Central Bank interest rate decisions later this week as investors weigh the outlook for future policy. However, as the daily RSI continues to approach oversold territory, we could see a corrective retracement later this week, and the pair may maintain a broad range over the near-term as European policy makers hold a dovish outlook for the region.