Posted on May 10, 2023, 08:08 by Dave Toth

Amidst struggling, waning upside momentum over the past three weeks, both short- and longer-term traders are reminded of 17-Apr’s relatively smaller-degree but we believe critical 1.0947 corrective low this market needs to sustain gains above in order to maintain a more immediate bullish count.  A failure below this level will break the uptrend from AT LEAST 08-Mar’s 1.0527 low and could complete a major 5-wave Elliott sequence up from last Sep’s 0.9592 low that, if correct, could produce a protracted multi-month correction to the 1.05-to-1.01 area or lower.  Per such, this 1.0947 low remains intact as a tight but pivotal risk parameter around which traders are advised to toggle directional biases and exposure.

Stepping back to a daily scale, both the chart above of the contract and the close-only chart of the underlying cash market below show upside momentum that’s been waning for weeks.  A failure below 1.0947 in the contract and below 1.0927 in the cash market will confirm the bearish divergence in momentum, break the uptrend from at least early-Mar’s 1.0527 low (1.0543 in the cash) and expose at least a correction of this portion of the new major bull market.  But given the prospect that Mar-May’s portion of the bull could be the completing 5th-Wave of an Elliott sequence that dates from last Sep’s major low, a much more protracted correction lower might also be exposed and once that could drive prices to the 1.05-to-1.0150-area (38.2%-to-61.8% retraces) or lower.  And with no levels of any practical technical merit between 1.0947 and 1.0527, even longer-term institutional players would be advised to pare or neutralize bullish exposure on a failure below 1.0947.

Finally and on a long-term basis, the weekly log chart above shows the extent and 5-wave impulsiveness of the rally from 28Sep22’s 0.9592 low that we believe is only the A- or 1st-Wave START to a major correction within or total reversal of the secular bear market in the euro that dates from 2008’s 1.6040 high shown in the quarterly log scale chart of the cash market below.  We still believe and want to beware of a larger-degree (B- or 2nd-Wave) corrective rebuttal to the past eight months’ initial counter-trend rally within a massive base/reversal environment.  But until and unless this market relapses below last Sep’s 0.9537 low in the cash market (below 0.9592 in the contract), we believe we’re witnessing the very early stages of a reversal up in the euro and down in the USD that could easily span YEARS.

These issues considered, a bullish policy and exposure remain advised with a failure below 1.0947 required to defer or threaten this call enough to move to at least a neutral if not cautiously bearish stance.  In lieu of such sub-1.0947 weakness, the major trend remains arguably up despite waning upside momentum and should not surprise by its continuance or acceleration.

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