As we discussed in yesterday afternoon’s Technical Webcast on the peak/reversal threats developing in the Euro and British Pound, we cannot conclude a long-term reversal from shorter-term technical events. However, the reversal of 10,000 miles begins with a single step, and yesterday afternoon’s recovery and poke above 14-Sep’s 92.66 initial counter-trend high in the USD Index may be such a step. This resumption of last week’s rally leaves yesterday’s 91.52 low in its wake as a smaller-degree corrective low the market must now relapse below to render the recovery attempt from 08-Sep’s 91.01 low a 3-wave and thus corrective affair consistent with a broader bearish count. Until such sub-91.52 weakness is proven however, there’s no way to know that this current rally from yesterday’s 91.52 low isn’t the a 3rd-Wave of a new, impulsive move higher that, for ancillary reasons we’ll discuss below, could morph into a major correction or reversal of 2017’s entire decline. In this specific regard we are considering 91.50 as our new short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can now be objectively based and managed.
The confirmed bullish divergence in daily momentum above is of a relatively small scale, allowing us only to conclude 08-Sep’s 91.01 low as the end of the downtrend from 16-Aug’s 94.15 next larger-degree corrective high. Commensurately larger-degree proof of strength above this 94.15 high and our long-term risk parameter remains required to break this year’s major downtrend and conclude 08-Sep’s 91.01 low as the END of a major 5-wave Elliott sequence down from 03-Jan’s 103.82 high. Indeed, thus far the market has only recovered to an area of former support around the 92.70-area from early-Aug that cannot be ignored as a new resistance candidate.
However, we believe the combination of:
- the developing potential for a bullish divergence in WEEKLY momentum below (confirmed above 94.15)
- the lowest Bullish Consensus (marketvane.net) reading (54%) in three years
- the prospect of a complete 5-wave decline from the Jan high and
- the Fibonacci progression fact that 08-Sep’s low fell just 16 pips shy of the (90.85) 2.618 progression of Jan’s 103.82 – 99.23 1st-Wave decline from 02-Mar’s 102.26 high
is a powerful one that warns of a base/reversal-threat environment that could be major in scope. This market has experienced an 8-month, near-10% decline this year. Even a Fibonacci minimum 38.2% correction could span months and produce prices in the 95.70-area. But given the magnitude of what we believe is only the initial A- or 1st-Wave counter to what has been an 8-YEAR secular bull in the USD, a much more extensive corrective rebuttal in terms of both price AND TIME should not come as a surprise at all.
These issues considered, shorter-term traders are advised to cover all previously recommended bearish exposure and move to a cautious bullish policy and exposure from the current 92.50-area OB with a failure below 91.50 required to negate this call and warrant its cover. Longer-term players are advised to pare bearish exposure to more conservative levels and jettison the position altogether on proof of further strength above 94.15.