S-T EURUSD Failure First Approached as Corrective | RJO Futures

December 6, 2016 2:32AM CST

EURUSD

The market's smart recovery yesterday above recent 1.0686-to-10691-area resistance and smaller-degree corrective highs confirms a bullish divergence in momentum that defines yesterday's 1.0506 low as one of developing importance and our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.  But while the market's proximity to the extreme lower recesses of the 21-month range is reason to beware another potentially significant intra-range recovery, yesterday's price spasm higher is thus far of too minor a scale to conclude such a larger-degree recovery, as opposed to just another correction within the broader decline from May's 1.1617 high.

Euro Index 240 min

Euro Index Daily

The daily chart above shows the bullish divergence in momentum that clearly stems the slide.  But relative to major decline from May's 1.1617 high with the market still below a preponderance of price action over this period, we believe the most we can conclude from yesterday's recovery thus far is that yesterday's 1.0506 low completed the downtrend from 04-Nov's orthodox high and key long-term risk parameter at 1.1146 .  Indeed, the market remains below even form 1.0850-area support from late-Oct that must first be approached as a new resistance candidate, let alone the next larger-degree corrective high and key risk parameter at 1.1146 .  On a daily close-only basis below the past couple weeks' recovery attempt has thus far failed to retrace a Fibonacci minimum of just Nov's 1.1139 - 1.0553-portion of the major bear, easily still within the bounds of just a corrective hiccup within the secular bear trend.

IF yesterday's admittedly short-term mo failure above 1.0691 is part of a broader reversal higher, subsequent proof of 3-wave, labored, corrective behavior on a subsequent relapse attempt would be required in the days ahead.  IF this market really labors in a retest attempt at yesterday's low AND THEN recovers above an initial counter-trend high (1.0797 currently), a better case can then be made for a larger-degree, if intra-21-month-range rebound.  And even then the 1.08-to-1.09-handle area would pose a major resistant hurdle.

Euro Index Daily

Euro Index Weekly

The weekly log scale chart above shows the market's recent position at the extreme lower recesses of the 21-month range amidst historically bearish sentiment accorded the Euro.  Such bearish sentiment is typical of major BASE/reversal environments and certainly contributes to a base/reversal argument as long as yesterday's 1.0506 low and short-term risk parameter remains intact.  Given the magnitude of the secular bear trend and mere lateral, consolidative behavior over the past 21 months however, we believe an emotional, fundamentally headline-driven break below Mar'15's 1.0462 low remains as the eventuality before a really long-term base/reversal environment can gains a toe-hold.

These issues considered, shorter-term traders with tighter risk profiles have been advised to move to the sidelines as a result of yesterday's recovery above 1.0691.  A relapse below yesterday's 1.0506 low and our new short-term risk parameter is now required to nullify this action, reinstate the secular bear and warrant a return to a cautious bearish policy.  Longer-term players are OK to pare bearish exposure to more conservative levels given the size of the chasm between our new short-term risk parameter at 1.0506 and our long-term risk parameter at 1.1146 , but the magnitude of the secular bear trend makes it premature to conclude the past couple weeks' pop as anything more than another correction within the secular bear to eventual new lows below not only yesterday's 1.0506 low, but 2015's 1.0462 low.  In this longer-term regard the past couple weeks' recovery attempt is advised to first be approached as another corrective selling opportunity that may have already topped at yesterday's 1.0797 high.

Euro Index Monthly

USD INDEX

It took a full two weeks for the Index to finally relinquish gains above our short-term risk parameter defined by 22-Nov's 100.65 corrective low detailed in the 240-min chart below.  And now that it has we can conclude a bearish divergence in SHORT-TERM momentum that defines 24-Nov's 102.05 high as one of developing importance and yesterday's 101.72 high as the latest smaller-degree corrective high and new short-term risk parameter the market now needs to sustain losses below IF something broader to the bear side lies ahead.  Its failure to do so would render the sell-off attempt from 102.05 a 3-wave and thus corrective affair consistent with the secular advance to eventual new highs above 102.05.  Former 100.65-area support is considered new near-term resistance ahead of further intermediate-term erosion.

Dollar Index 240 min

Dollar Index Daily

On a grander scale the past couple weeks' sell-off attempt still falls well within the bounds of a mere correction within the secular bull market and is advised to first be approached as such by longer-term players.  Former lower-99-handle-area resistance from late-Oct is considered new key support with 04-Nov's next larger-degree corrective low at 96.89 still intact as our long-term risk parameter the market really needs to fail below to break even this year's uptrend, let alone the secular bull.

Dollar Index Weekly

It is interesting to point out that Nov's 102.05 high was just a few pips beyond the (101.80) 61.8% retrace of 2001 - 2008's decline from 121.20 to 70.70 on a quarterly linear scale below.  But in lieu of a confirmed bearish divergence in momentum on this scale needed to, in fact, break the long-term uptrend, this interesting but merely DERIVED technical level means nothing.

In sum, shorter-term traders with tighter risk profiles have been advised to move to a neutral/sideline position following yesterday's short-term mom failure below 100.64 in order to circumvent the depths unknown of what we suspect is just an interim correction.  A recovery above yesterday's 101.72 minor corrective high and new short-term risk parameter is required to reverse this call and re-expose the long-term bull to eventual new highs above 102.05.  Former 100.65-area support is considered new near-term resistance.  Longer-term players are OK to pare bullish exposure to more conservative levels as a result of yesterday's sub-100.64 slip, but on their commensurately larger-degree scale a failure below 04-Nov's 96.89 corrective low and key risk parameter remains required to truly negate our long-term bullish count calling for at least one more round of new highs above 102.05.

Dollar Index Quarterly


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