Daily Outlook: Skimmed 200+ pips off of a three inside down candle pattern from CP yesterday, and I still have part of the position open for a longer term trade to the downside. This could be part of the larger drop down I’ve been waiting for months now. The pair dropped like a rock as risk appetite went running like rats from a sinking ship. For those seeking a fundamental explanation (I don’t even bother these days, personally) here you go:

U.S. small-capitalization stocks plunged Wednesday in their biggest two-day drop since early June, highlighting the anxiety that flooded the market over worries of a global economic slowdown.The Federal Reserve’s more cautious assessment of the economic recovery and data showing slower growth in China sent the broad market into a tailspin Wednesday. Small-caps, thought to sink further in times of economic weakness, fell most steeply as investors fled from riskier assets.

And some more liquidty specific items:

The ECB announced today that two European banks used up $430M in FX swap lines, underscoring the very real shortage of USD at banks and the consequent forthcoming demand for dollars. Meanwhile, Eurostat is forcing Germany to consider its holdings of Hypo RE & WestLB debt as sovereign. The implications, as per Maastricht Treaty constraints, could be enormous for Euro nations if this is a precedent.

I’m bearish and will continue looking for bearish signals and candlesticks to enter on. I think the biggest risk to this trade is my bias and I need to be conscious of that: I’ve been looking for a bearish drop for months now (even while I bought with the trend) and I need to make sure I’m taking these shorts for the right technical reasons and not out of emotion.

Trading Idea: Primary resistance trade will be a short near 1.30 with targets at 1.2975, 1.2945, 1.2915 and 1.2885 for 115 pips profit.

I’ll consider the more aggressive short from 1.2950 (possibly even 1.2915 on 4h charts) if the setup looks good with targets at 1.2925, 1.2895, 1.2865, 1.2835.

Finally, the most aggressive S/R trade I will consider is short on a close below 1.2840 with ultimate target at 1.2750.

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