Euro Failure Threatens 14-Month Run, Exposes Major Correction Lower

April 27, 2018 11:38AM CDT

15 months ago, in 31Jan17's Technical Blog, we introduced our major base/reversal count that concluded the Dec'16 low of 1.0341 in the cash Euro ended the secular bear market from Jul 2008's 1.60 high and that a new secular bull market in the Euro had begun. The ensuing 21%, 14-month rally shown in the monthly log active-continuation chart below, that includes the market's recovery above huge former 1.20-area support-turned-resistance, reinforces this count.

For reasons we'll discuss below however, we believe 16-Feb's 1.2580 high in the then-prompt Mar contract may have completed the INITIAL (A- or 1st-Wave) rally within a major multi-year base/reversal process that could next include a (B- or 2nd-Wave) correction lower that could be extensive in terms of price and/or time. Indeed, when the market peaked in Jul 2008 and collapsed in its "initial" (A- or 1st-Wave) decline to Oct'08's 1.2326 low, the market had to endure an extensive (B- or 2nd-Wave) corrective rebuttal to 1.5144 as part of that major, multi-year peak/reversal process. Until and unless the current market resurrects strength above some of the corrective highs and risk parameters left in the wake of the past couple months' decline, traders are advised to beware further losses that could be relatively major in scope and span months or even quarters.
Euro Monthly Chart
Euro Weekly Chart
Yesterday's break below 01-Mar's 1.2166 low and our long-term risk parameter, in fact, breaks the uptrend from at least 07-Nov's 1.1578 low and leaves smaller- and larger-degree corrective highs in its wake at 1.2294 and 1.2470 that the market would be expected to now sustain losses below per a more immediate bearish count. IF, alternatively, the past couple months' slide is just a slightly larger-degree bull market correction, then the bull's got to get about its business and start recovering above these new bear risk parameters. In lieu of such we believe the Euro may now be tremendously vulnerable to steep, extensive losses for months ahead.

The weekly log close-only chart above shows the market still above key former 1.20-handle-area resistance from last Sep that would/should be expected to hold as new support IF the broader bull trend is still intact. However, the combination of an arguably complete 5-wave Elliott sequence from Dec'16's 1.0492 low weekly close amidst recently historically frothy bullish sentiment not seen in FOUR YEARS is a powerful one that clearly is consistent with major peak/reversal environments. And if such a major correction or reversal lower has begun, even a Fibonacci minimum 38.2% retrace of the Dec'16 - Feb-18 bull doesn't curt across until the 1.1685-area. And given the prospect that the Euro is trying to reverse 8-1/2-years of secular bear market, a more extensive 61.8% retrace (or more) to 1.12 or lower may be in the cards.

Euro Daily Chart
The 240-min chart below details the past few weeks' developing and accelerating decline as and the shorter- and longer-term corrective highs and new bear risk parameters at 1.2294 and 1.2470, respectively. Until and unless the market can recoup these levels, the trend is down on all practical scales and should not surprise by its continuance or acceleration.

These issues considered, all previously recommended bullish policy and exposure for long-term players has been nullified and they are now advised to move to a new bearish policy and exposure on a scale-up from at-the-market to the 1.2275-area with a recovery above 1.2470 required to negate this call and warrant its cover. A bearish policy remains advised for shorter-term traders with tighter risk profiles with a recovery above 1.2295 required to step aside. In lieu of such strength further and possibly protracted, sustained losses are expected straight away and for what could be months or even quarters.

Euro Jun '18 240min Chart

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