Euro Recovery Consistent with Broader BASE/Reversal Count | RJO Futures

March 20, 2017 2:46PM CDT

EURUSD

Last Wed's recovery above 13-Mar's 1.0715 high reinforces our developing bullish count discussed in 13-Mar's Trading Strategies Blog that advised approaching setback attempts to 1.0600 OB as corrective buying opportunities within a larger-degree BASE/reversal count from 03-Jan's 1.0341 low that could surprise by its scope.  As a direct result of this resumed strength the market has identified 14-Mar's 1.0600 low as the latest smaller-degree corrective low and new short-term risk parameter from which a continued bullish policy and exposure can be objectively rebased and managed.

Euro Index 240 min Chart

Euro Index Daily Chart

While the market has yet to break above 02-Feb's 1.0829 high, the extent of the past month's recovery raises the odds that the relapse from that early-Feb high to 22-Feb's 1.0493 low is a corrective B- or 2nd-Wave within a much broader base/reversal process from the Jan low.  Factors contributing to this major base/reversal count include:

  • the market's failure thus far to sustain Dec-Jan's break below Mar'15's 1.0462 "headline low"
  • an arguably complete 5-wave Elliott sequence down from May'16's 1.1617 high amidst
  • historically bearish levels of market sentiment shown in the weekly log chart below.

To be sure, the market remains below a TON of price action between 1.0950 and 1.1617 that could easily cap the current recovery as yet another correction within the secular bear trend.  But we'll only be able to discern such a count AFTER the market fails below at least 22-Feb's 1.0493 low and preferably Jan's 1.0341 low and key long-term risk parameter.  In lieu of such weakness and especially following a breakout above 02-Feb's 1.0829 high, the Euro could be vulnerable to further and possibly surprising gains as the consensus fundamental picture is that the Euro has nowhere to go but down.

Euro Index Weekly Chart

Euro Index Monthly Chart

The monthly log scale chart above shows both measures of market sentiment at historically low levels as well as the Fibonacci progression fact that the decline from May'14's 1.3993 high has spanned a virtually identical length (i.e. 1.000 progression) to Jul'08 - Jun'10's decline from 1.6040 to 1.1876.  On an even broader quarterly log scale basis below, Jan's 1.0341 low was less that three figures away from the (1.0618) 61.8% retrace of the secular bull market from Oct'00's 0.8228 low to Jul'08's 1.6040 all-time high.

Granted, the market has yet to break above May'16's obviously pivotal 1.1617 major corrective high needed to CONFIRM a bullish divergence in momentum on THIS SCALE, but it's not hard to see the developing POTENTIAL for such a monumental mo failure just as that that warned of and accompanied Oct 2000's major low.  All reversals have to walk before they can run, and the next key threshold for the Euro's base/reversal count is 02-Feb's 1.0829 high.  But the past few days' strength is a step in that direction.

These issues considered, a cautious bullish policy and exposure remain advised with a failure below 1.0600 required to negate this specific call and warrant a move to the sidelines.  In lieu of such sub-1.0600 weakness we anticipate further lateral-to-higher prices with a break above 1.0829 exposing potentially sharp gains thereafter.

Euro Index Quarterly Chart

 

USD INDEX

The technical construct and expectations for the USD Index are identical, only inverted to those detailed above for the Euro with the past few days' resumed slide below 101.01 leaving 14-Mar's 101.79 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter the market is minimally required to recoup to threaten our preferred bearish count.

Dollar Index 240 min Chart

Dollar Index Daily Chart

Last week's continued slide comes on the heels of a 61.8% retrace of Jan's 103.82 - 99.23 decline that we believe comprise the initial A- or 1st-Wave down and B- or 2nd-Wave up of a major peak/reversal process.  If correct this count warns of a (C- or 3rd-Wave) resumption of Jan's initial counter-trend break to what could be surprising losses below 99.23.

The weekly chart below shows 02-Feb;s 99.23 low as being the exact 38,2% retrace of May'16 - Jan'17's 91.92 - 103.82 rally that still cannot be ruled out as another major BULL market correction.  However and as discussed in the past couple months' blog updates, the:

  • bearish divergence in momentum resulting from Jan's break
  • arguably complete 5-wave Elliott sequence from May'16's 91.92 low to Jan's 103.82 high and
  • historically frothy bullish sentiment

are factors typical of major peak/reversal environments.  A relapse below 99.23 will reinforce this environment while strength above at least 101.79 is required to threaten it.  These issues considered, a cautious bearish policy remains advised with strength above 101.79 required to warrant a move to the sidelines.

Dollar Index Weekly Chart

 

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