The market's failure overnight below our 1.2628 short-term risk parameter discussed in yesterday's Technical Webcast confirms a bearish divergence in momentum that defines yesterday's 1.2776 high as the possible end to the rally from not only 18-Nov's 1.2302 low detailed in the 240-min chart below, but possibly the broader recovery from 11-Oct's 1.2090 low. In this regard 1.2776 becomes our new short-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can now be objectively based and managed. A recovery above 1.2776 negates this call, reinstates at least the intermediate-term uptrend and exposes the pivotal 1.28-handle area the market needs to hurdle to raise the odds of a major base/reversal environment.\
While this mo failure below 1.2628 is one of only a smaller degree, the fact that it stems from the 1.28-handle area could prove critical from a longer-term perspective. The daily chart above shows Jul-Aug's 1.2798-to-1.2866-range as a key former support area and condition that, since demolished in early-Oct, now serves as a key new resistance candidate. The Fibonacci fact that 1.2768 is the 50% retrace of the decline from 06-Sep's 1.3446 high to 11-Oct's 1.2090 orthodox low arguably contributes to this area as a resistant one now that the market has provided at least some semblance of objective weakness with overnight's mo failure that defines a specific, reliable high at 1.2776.
The longer-term issue is this: there's really no way to know at this juncture whether the recovery attempt from 11-Oct's 1.2090 low is merely another correction ahead of a resumption of the secular bear to new lows below 1.2090 OR the initial 1st-Wave to a major correction or reversal higher. The dominance of the secular bear trend shown in the weekly and monthly charts below would suggest betting on the resumed bear first. And if this is the case, then former 1.28-handle-area support would be expected to hold as new resistance. Overnight's admittedly short-term mo failure below 1.2628 is the first concrete evidence reinforcing this bearish case, and the beauty of it is that traders can now safely make such non-bullish bets with an objective risk parameter at 1.2776.
IF, alternatively, the market is currently engaged in a broader BASE/reversal process, then a recovery above yesterday's 1.2776 high would be the next reinforcing factor for such a count. Ultimately however and from a long-term perspective, a recovery above 06-Sep's larger-degree corrective high and key long-term risk parameter at 1.3446 is required to break the secular bear trend and confirm a major reversal higher. On a weekly log close-only basis below this long-term risk parameter is defined by 02-Sep's 1.3294 corrective high weekly close.
The monthly log active-continuation chart below shows the magnitude of the secular bear trend from Nov 2007's 2.1160 high, The past couple months recovery would look even piddlier if the spasm of 07-Oct that saw the pound fall SIX FIGURES below 11-Oct's 1.2090 orthodox low is ignored as a "rogue event" of no technical merit. Clearly, from this long-term perspective, ONLY a recovery above 06-Sep's 1.3446 corrective high and area of former support-turned-resistance would suffice as a legitimate threat to the secular bear market.
These issues considered, longer-term players remain advised to maintain a bearish policy with strength above 1.2776 now required to pare exposure to more conservative levels and further strength above 1.3446 required to jettison the position altogether. Shorter-term traders with tighter risk profiles have been advised to cover interim bullish exposure on the failure below 1.2628 and are next advised to re-establish a cautious bearish policy by first approaching rebounds attempts to the 1.2700-area OB as corrective selling opportunities with a recovery above 1.2776 required top negate this call. In lieu of such 1.2776+ strength a resumption of the secular bear market to new lows below 1.2090 should not surprise. Shorter-term weakness below former 1.2515-area resistance-turned-support will reinforce this bearish call.