I am happy to report we got into the short USD/JPY trade just a few points from the high, as well as the EUR/USD long trade just a few points from the lows. Neither trade met its respective target, as the market is in corrective mode, but both offered as much 40 points of profit before chopping back towards the entry.

The market has come a long way in a very short period of time. The October move from 1.2500 up to 1.2900 was thought to be no more than summer range continuation at the time. But in actuality, it was the first of a 5-wave trend that was unfolding. Wave 1 brought us the top of the summer range before lightly pulling back in November's wave 2 down. More range trading, everyone thought. Quite to the contrary. Wave 3 exploded higher to what we think is the 1.3366 high. Because wave 3 was so sudden and so directional, pullback traders who don't chase runaway trends were not involved in the move. But rest assured they are waiting patiently on the sidelines.

Now the problem arises. Because wave 2 occurred within the summer range, it flew under the radar, so to speak. Traders did not know that the trend trade was on, they though the brutal range was still intact, so many traders missed the entire breakout. Now, we find ourselves at the top of wave 3 (I think) and behind the curtain we see profit-taking from wave 3 longs, top-picking short-sellers entering the market, shorts who were caught on the wrong side of the market as it broke, and light pullback buying from new longs yet to enter the market. That's a lot of traders in one room jockeying for position. So my point is expect wave 4 to be choppy and treacherous, again because wave 2 was nice and night, until either the 1.3370 high breaks, or our projected end of wave 4, either 1.3230 or 1.3140 trades.

I would dump any remaining EUR/USD longs, per the reasons cited above, and hold onto any USD/JPY short you still have. The count is a bit cleaner in USD/JPY and the 113.60 wave C target remains well intact.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.