EURUSD Peak/Reversal Threat Grows, Move to Cautious Bearish Stance

September 25, 2017 12:03PM CDT

We discussed the developing potential for a peak/reversal-threat environment in last Wed's Technical Webcast.  Today's break below 14-Sep's 1.1838 initial counter-trend low confirms a bearish divergence in momentum that raises the odds of this peak/reversal count and leaves Fri's 1.2005 high in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to mitigate this threat, render the sell-off attempt from 08-Sep's 1.2092 high a 3-wave and thus corrective affair and re-expose this year's major bull.  In lieu of such 1.2005+ strength we believe at least a larger-degree correction has begun and quite possibly a correction or reversal of 2017's entire uptrend from 03-Jan's 1.0341 low.

Euro Index 240 min Chart

Of course, we cannot conclude a major peak/reversal threat from such minor weakness as the market has exhibited the past couple weeks.  But we do want to reiterate the mounting ancillary factors that we believe warn of just such a major top.  Chief among them is this year's rally into the teeth of huge former support from the 1.19/1.20-area from Jun 2010 until Jan'15's meltdown below this area that left it as a new and equally huge resistance candidate.  The fact that 08-Sep's 1.2092 high came with about 60 pips of the (1.2029) 50% retrace of 2014 - 2017's 1.3993 - 1.0341 decline contributes to this area as key resistance now that the market has stemmed the uptrend on at least some degree with today's bearish divergence in momentum.

Euro Index Monthly Chart

Euro Index Daily Chart

The daily chart above shows the confirmed bearish divergence in momentum that leaves 08-Sep's 1.2092 high in its wake as the possible END to a huge 5-wave Elliott sequence from 03-Jan's 1.0341 low.  The Fibonacci fact that the rally from 16Dec16's 1.0453 low spanned a length exactly 61.8% longer than 2015-16's preceding 1.0494 - 1.1450 contributes yet another factor to this peak/reversal count.

Euro Index Weekly Chart

In addition to waning upside momentum on a weekly basis below, the fact that our RJO bullish Sentiment Index has recently reached its highest level in over three years rounds out this impressive and compelling list of factors that could see the past couple weeks' admittedly minor weakness morph into a reversal environment that could be major in scope.  While commensurately larger-degree weakness below 17-Aug's 1.1662 next larger-degree corrective low remains required to confirm a bearish divergence in WEEKLY momentum needed to, in fact, break this year's major uptrend, traders are nonetheless advised to move to a new bearish policy and exposure from current 1.1850-area levels OB with strength above 1.2005 required to negate this specific call and warrant its cover.  In lieu of such 1.2005+ strength we anticipate further and possibly weeks or even months of weakness in the Euro.

Euro Index Weekly 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.