EURUSD Reinforces Major Base/Reversal Count; USD Index Vulnerable to Collapse | RJO Futures

March 27, 2017 8:45AM CDT


Today's break above 02-Feb's 1.0829 initial counter-trend high CONFIRMS our major base/reversal count introduced in 31-Jan's Technical Blog and exposes further and possibly extreme gains straight away.  This strength confirms 22-Feb's 1.0493 low as a (B- or 2nd-Wave) corrective low and new key risk parameter the market is required to fail below to render the recovery attempt from 03-Jan's 1.0341 low a 3-wave and thus corrective affair consistent with a still-unfolding secular bear market.  Until such sub-1.0493 weakness is proven there is no way to know that the rally from 22-Feb's 1.0493 low isn't the 3rd-Wave of a major reversal higher.

Today's strength leaves Fri's 1.0760 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter the market is now minimally required to fail below to even defer, let alone threaten this resumed and potentially major bullish count that exposes further and possibly steep, even relentless gains straight away.

Euro Index Daily Chart

Euro Index Weekly Chart

Historically bearish sentiment has been and remains an integral component to our major base/reversal count.  Indeed, the weekly (above) and monthly (below) log scale charts show the historical nature to which, understandably, the secular bear market drove the sentiment indicators.  From a contrary opinion perspective however, such gross bearishness is typically a component of all major base/reversal environments once the market stems the clear and present downtrend with a bullish divergence in momentum.  Such a momentum failure was confirmed with the late-Jan recovery above 1.0765 and now has been reinforced with resumed gains above that initial counter-trend high.  And it it such gross bearish sentiment that leaves the Euro VULNERABLE to further and possibly extreme gains.

To be sure, on a massive scale shown below this market is still required to recover above May'16's major corrective high and mega-risk-parameter at 1.1617 to truly break the 9-year secular bear market.  But today's clear breakout above 02-Feb's 1.0829 high leaves nearly a QUARTER'S worth of basing behavior beneath that we believe serves as a major base for further and possibly shocking gains straight away.  We say shocking because, fundamentally, the world's still got plenty of reasons to believe the Euro is still heavy and in a bear market.

These issues considered, a full and aggressive bullish policy remains advised with weakness below 1.0760 required to defer this call enough for shorter-term traders to neutralize bullish exposure and longer-term players to pare bullish exposure to more conservative levels.  In lieu of such weakness further and possibly extreme gains are expected straight away.

Euro Index Monthly Chart



The technical construct and expectations for the USD Index are identical to those detailed in the Euro update above, only inverted, with today's break below last week's 99.55 low reaffirming the developing downtrend and leaving Fri's 100.00 high in its wake as the latest smaller-degree corrective high and new short-term risk parameter from which a still-advised bearish policy can be objectively rebased and managed.

Dollar Index 240 min Chart

Dollar Index Daily Chart

Today's clear break below 02-Feb's 99.23 low and 38.2% retrace of 2016's entire 91.92 - 103.62 rally CONFIRMS the new longer-term trend as down and defines 02-Mar's 102.26 high as THE high and key risk parameter this market is now required to recoup to negate this bearish count, render the sell-off attempt from 03-Jan's 103.82 high a 3-wave and thus corrective structure and re-expose the secular bull market.  In lieu of such 102.26+ strength there's no way to know the decline from 102.36 isn't the 3rd-Wave of a major reversal lower.

Integral to a MAJOR PEAK/reversal count is the gross extent to which the Managed Money contingent has its neck sticking out on the bull side.  At a still-whopping 84% reading reflecting 28.5K long positions reportable to the CFTC versus just 5.5K shorts, it's highest level in over FIVE YEARS, this long-&-wrong positions provides fuel for downside vulnerability that could be massive should the market force its capitulation (which is not uncommon once the uptrend is broken as 2016's uptrend has).

Dollar Index Weekly Chart

Lastly, and as we have discussed for the past couple months, early-Jan's 103.82 high is just half a figure from the (103.32) 1.618 progression of 2008-09's initial 70.70 - 89.62 rally from May'11's 72.69 corrective low.  Combined with an arguably complete major Elliott Wave sequence up, historically bullish sentiment and a confirmed bearish divergence in momentum of a scale sufficient to threaten the secular bull market in the USD, traders are advised to maintain a full and aggressive bearish policy and exposure with minimum strength above 100.00 required to even defer this call.  In lieu of such strength further and possibly steep, accelerated losses are anticipated straight away.

Dollar Index Quarterly Chart


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