Euro Pop (Still) Approached as Corrective | RJO Futures

January 10, 2017 2:05AM CST

It's easy to find base/reversal-threat factors like historically bearish sentiment and waning downside momentum in almost any major downtrend, but navigating the inevitable correction-vs-reversal dilemma typically comes down to the issue of SCALE.  The secular bear trend from Jul 2008's 1.6040 high is a massive event.  It's unlikely to establish a major low and reversal without months or even quarters of basing behavior that will likely include an initial counter-trend recovery of some substance followed by a corrective retest of the rejected low that will be "extensive" in terms of price and/or time.  The reversal out of the Feb 1985 low is a notable exception.

Euro Quarterly

The weekly log scale basis below provides a clear and objective LONG-TERM risk parameter defined by 03May16's 1.1617 high that this market must recoup to even threaten, let alone break the secular bear market.  Could the decline from that 1.1617 high be the COMPLETING  5th-Wave of an 8-YEAR bear market?  Absolutely.  And, subjectively, we believe it is and that the Euro will establish a major low and reversal "sometime" this year.  But in lieu of either a recovery above 1.1617 or considerable basing behavior that could span months and needs to include proof of trend, impulsive behavior higher and labored, corrective behavior on setback attempts, any such calls for a major bottom in the Euro would be technically baseless and subjective at this point.  The market simply has not provided any reason whatsoever to suggest recovery attempts such as the past few weeks is anything but another correction within the secular bear market to eventual new lows below 1.0350.

Euro Index Weekly

Euro Index Daily

The current technical and trading challenge is discerning the size or "scale" of the current correction.  It is clear that on a daily close-only basis below, 05-Dec's 1.0764 corrective high defines THE specific corrective high and risk parameter this market needs to recoup to, in fact, break the downtrend from 18-Aug's 1.1354 high.  The Fibonacci fact that this level is also the (1.0756) 38.2% retrace of a suspected 3rd-Wave down from Aug's 1.1354 high would seem to reinforce its importance.

On a daily bar chart basis above this equivalent corrective high and risk parameter is 08-Dec's 1.0875 intra-day high.

Euro Index Daily

ON a very short-term basis the 240-min chart below details the past few weeks' lateral chop that, again, is advised to first be approach as a 3-wave corrective, consolidative affair ahead of the eventual resumption of the secular bear market.  This suspected bear market correction is NOT contingent on the market's ability to stay below our short-term risk parameter defined by 30-Dec's 1.0654 high.  But technical and trading discipline requires this risk parameter as the correction or reversal's upside potential beyond 1.0654 is indeterminable.  We believe that a whipsaw is likely IF the market breaks above 1.0654.  But this can only be determined after the event.  And with no technical levels of any merit between 1.0654 and 08-Dec's 1.0874 high to look to as resistance, short-term bears are advised to step aside from exposure if the market pokes above 1.0654 and incur the whipsaw risk (as one can always reset) rather than having the "hope" for such a spike to end earlier rather than later.

In sum, a bearish policy remains advised with strength above 1.0654 required for shorter-term traders with tighter risk profiles to move to the sidelines in order to circumvent the heights unknown of what we['d still suspect to be a bear market correction from 20-Dec's 1.0352 low.  Longer-term players remain advised to maintain a bearish policy with a close above 1.0875 and/or an intra-day recovery above 1.0875 required to move to the sidelines.  In lieu of strength above at least 1.0654 we anticipate the 3-week recovery's end around the low-1.06-handle ahead of a resumption of the secular bear market to new lows below 1.0352.

Euro Index 240 min


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