Posted on Oct 26, 2022, 08:29 by Dave Toth
In yesterday’s British pound Technical Blog, we discussed its bullish divergence in DAILY momentum above 05-Oct’s 1.1511 initial counter-trend high that exposes at least a larger-degree correction higher and possibly the early rumblings of a major base/reversal threat. Overnight, the euro’s break above 04-Oct’s 1.0055 initial counter-trend high and our key longer-term bear risk parameter confirms a similar bullish divergence in daily momentum that threatens the secular bear trend and exposes at least a larger-degree correction higher and possibly a major reversal.
Today’s continuation of not only this week’s rally, but also late-Sep/early-Oct’s uptrend leaves smaller- and larger-degree corrective lows in its wake at 0.9888 and 0.9675, respectively. These are the levels this market is now required to fail below to threaten and then negate the recovery, render it another 3-wave and thus corrective event and re-expose the secular bear trend. Until and unless such weakness is proven, the rally from 13-Oct’s 0.9675 low is at least the C-Wave of a larger-degree bear market correction OR the dramatic 3rd-Wave of the early stages of a base/reversal environment that could be major in scope.
Moving out to a weekly log chart above, trying to “count” all the iterative corrective stair-steps down since late last year is virtually impossible. Suffice it to say that it is indeterminable whether 28-Sep’s 0.9592 low is the end of a 3rd-wave or a 5th-Wave. What we know as fact however is 1) the market has at least compromised the major downtrend pattern of lower lows and lower highs on a scale sufficient to threaten the secular bear trend while 2) that the Bullish Consensus (marketvane.net) has recently been at a 7-YEAR low. This combination is an acute one that warns of a base/correction/reversal count that could produce extensive gains in the period ahead.
Finally and on an even broader quarterly log scale basis of the underlying cash EURUSD market, the chart below shows the resumed secular bear trend and possibly 5th-wave down from Jan’21’s 1.2350 high coming with a figure of the (0.9416) 0.618 progression of the net span of Waves-I-thru-III (1.6040 – 1.0341). This is a massively long-term consideration on which even the past month’s recovery has little bearing. But until and unless this market weakens below levels like 0.9888 and especially 0.9675, and knowing that every larger-degree momentum failure starts with a smaller-degree failure, it is not premature at all to beware at least a larger-degree correction and possibly a major reversal higher.
These issues considered, all previously recommended bearish policy and exposure for long-term institutional players has been nullified, warranting a move to at least a neutral/sideline position. Additionally, traders are advised to move to a cautious bullish policy and exposure current 1.0050 levels OB with a failure below 0.9888 required to threaten this call enough to warrant its cover. In lieu of such sub-0.9888 weakness, further and possibly accelerated gains are expected.