USD Index, EURUSD Take Next Correction/Reversal Steps

August 15, 2017 9:28AM CDT

In yesterday's Technical Webcast we introduced the prospect of a developing base/correction condition following 04-Aug's bullish divergence in very short-term momentum that required the next larger-degree "scale" of strength to perpetuate the condition.  This morning's break above 09-Aug's 93.89 initial counter-trend high is such strength and leaves Fri's 92.93 low in its wake as the latest smaller-degree corrective low and new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.

While this morning's strength identifies an exact risk level (92.93) for non-bearish decisions, there is NO WAY to know whether this recovery is the correction we suspect it is OR the start of a major reversal higher.  In other words the market's upside potential is indeterminable.  And given the extent of this year's USD collapse, even a relatively minor rebound could be nominally significant.

The ONLY way to get a handle on the market's upside potential is AFTER a countering bearish divergence in momentum stems it.  And this requires proof of weakness below az prior corrective low like, currently, 92.93.

Dollar Index 240 min Chart

Dollar Index Daily Chart

Indeed, even Fibonacci minimum 23.6% and 38.2% retraces of the suspected 3rd-Wave down from 02-Mar's 102.26 high don't cur across until the 94.75 and 96.15 levels, respectively.  And such a rebound would still fall well within the bounds of a (4th-Wave) correction ahead of an eventual (5th-Wave) resumption of the bear to another round of new lows below 92.54.

For an approximate comparison/contrast Feb's 2nd-Wave correction spanned a month and three full figures from 99.23 to 102.26, so an interim 4th-Wave correction to the 95-to-96-range over the course of the next few weeks is well within bounds as long as the market sustains gains above 92.93.

These issues considered, both short- and long-term traders are advised to move to a neutral/sideline policy at-the-market with a relapse below 92.93 required to reconsider bearish exposure.  Traders are even OK to consider interim cautious bullish exposure from 93.90 OB with a failure below 92.93 required to negate the trade and ahead of a suspected corrective rebound to the 95-to-96-range in the weeks ahead.

Dollar Index Weekly Chart



An equal but inverted peak/correction/reversal-threat environment has been reinforced by today's slip below last week's 1.1689 initial counter-trend low as this resumed weakness identifies Fri's 1.1847 high as the latest smaller-degree corrective high the market now needs to recoup to nullify the sell-off attempt from 02-Aug's 1.1911 high, render it a 3-wave and thus corrective affair and re-expose the major uptrend.  In lieu of such 1.1847+ strength the intermediate-term trend is down and is expected to continue.

Euro Index 240 min Chart

Euro Index Daily Chart

Against the backdrop of the broader uptrend shown in the daily (above) and weekly (below) log scale charts however, any sell-off attempt is advised to first be approached as a (4th-Wave) correction and eventual re-buying opportunity within an eventual 5-wave sequence up from 03-Jan's 1.0341 low to at least one more round of new highs above 1.1911.  And this correction could easily set back to the 1.1560-to-1.1350-range (23.6%-to-38.2% retraces of 1.0494 - 1.1911 3rd-Wave) and remain well within its corrective context before the bull resumes.

Euro Index Weekly Chart

Finally, the increased odds of such a suspected 4th-Wave correction should come as little surprise ahead of the entire 1.19-handle-area that we've recently identified as a hugely important resistance candidate.  And that IF that resistance was ultimately going to squelch this year's major bull, the bull needed to show signs of "slowing down" before the ultimate peak.  The suspected correction that we believe was reinforced today is EXACTLY the type of behavior we'd expect IF ultimately that 1.19-to-1.20-area is going to cap this year's bull.

These issues considered, all traders are advised to move to a neutral/sideline position at-the-market (1.1705) to circumvent the depths unknown of a suspected correction within this year's major bull.  A correction to the 1.1550-to-1.1350-range would be well within bounds and traders are OK to take a cautious bearish punt from current levels with a recovery above 1.1847 negating the play and re-exposing the major bull.  We will be watchful for a countering bullish divergence in momentum needed to stem this relapse and provide another favorable risk/reward opportunity from the buy side.  But given the magnitude of this year's bull, that could be a week or two or three away.

Euro Index Monthly Chart


RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.