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Currencies

Euro, Sterling Stem Suspected Corrections

Posted 10/30/2019 8:09AM CT | RJO Market Insights

DEC EURO

While of a very minor scale, the market’s recovery yesterday above a minute corrective high from Mon at 1.1143 confirms a bullish divergence in very short-term momentum detailed in the 240-min chart below.  We’re looking at such minutia due to the suspected 3-wave and thus corrective sell-off attempt from 21-Oct’s 1.1222 high within the context of this month’s broader uptrend and base/reversal threat that could be major in scope.  The Fibonacci fact that yesterday’s 1.1108 resulting low was just a couple pips from the (1.1108) 50% retrace of the (prospective 3rd-Wave) rally from 08-Oct’s 1.0992 low to that 1.1222 high would seem to reinforce this bull market correction count ahead of a (5th-wave resumption of the bull to new highs above 1.1222.

Granted, commensurately larger-degree strength above 24-Oct’s 1.1200 corrective high and short-term risk parameter remains required to CONFIRM the recent setback as a 3-wave and thus corrective affair.  But by the same token, resumed weakness below yesterday’s 1.1108 low is now required to negate this bull market correction count.  Per such, this 1.1108 level is considered our new micro risk parameter from which shorter-term traders can objectively rebase and manage the risk of a resumed bullish policy.

From a longer-term perspective we know that 18-Oct’s bullish divergence in daily momentum above 13-Sep’s 1.1184 corrective high confirms 01-Oct’s 1.0938 low as THE END of a textbook 5-wave Elliott sequence down from 25-Jun’s 1.1558 high in the Dec contract.  This exposes AT LEAST a larger-degree correction of this portion of the 19-month decline from Feb’18’s 1.2580 high.  At most, this month’s recovery could be the embryonic 1st-Wave of a multi-YEAR base/reversal environment that warns of a resumption of 2017-18’s uptrend to eventual new highs above 1.26!

Persistent but understandably historically bearish sentiment/contrary opinion levels are key components and characteristics of exactly such major base/reversal environments.  To negate this base/reversal count, all the bear needs to do is resuscitate weakness below 01-Oct’s 1.0938 low.

Our very long-term base/reversal count is predicated on the following simple facts:

  • Jul’17’s bullish divergence in MONTHLY  momentum above May’16’s 1.1631 corrective high that, in fact, broke the secular bear trend
  • a complete 3-wave decline from Jul’08’s 1.5988 high in which
  • the suspected C-Wave down from May’14’s 1.3993 high spanned an identical length (i.e. 1.000 progression) to Jul’08 – Jun’10’s preceding 1.5988 – 1.1874 decline
  • historically bearish sentiment/contrary opinion levels and
  • a trendy, impulsive, 5-wave initial counter-trend rally from Dec’16’s 1.0367 low to Feb’18’s 1.2580 high.

We know the magnitude of the past 19 months’ relapse is hard to envision as a “mere correction”.  But within the long-term context of a major, multi-year BASE/reversal-threat environment, this relapse falls within the bounds of exactly such a correction.  And if correct, the risk/reward merits of this bullish count are insane, with eventual 1.26+ levels (and probably 1.30 to 1.40 levels) expected to be seen before negated by a break below 1.03 or even threatened by a relapse below 01-Oct’s 1.0938 low.

These issues considered, a bullish policy remains advised for long-term players with a failure below 04-Oct’s (suspected 1st-Wave) high at 1.1058 required to threaten this bullish count enough to warrant its cover.  Shorter-term traders are OK to either maintain a cautious bearish position with a recovery above 1.120 required to negate this cal or re-establish a cautious bullish policy from current 1.1140-area prices OB with a failure below 1.1108 required to negate this call and warrant its cover.

DEC BRITISH POUND

The technical construct and expectations for sterling are virtually identical to those detailed above in the euro with a minor bullish divergence in momentum yesterday/today defining 240Oct’s 1.2810 low as one of developing importance and the prospective end or lower boundary to a suspected correction within this month’s still-developing uptrend.  In this regard, this 1.2810 level is considered our new short-term risk parameter from which an advised bullish policy can be objectively rebased and managed.

Here too, from a long-term perspective, the market’s gross failure to sustain Aug losses below key former Dec’18 support-turned-resistance around the 1.25-handle and extent of the past couple months’ total rejection of Jan’17’s 1.200-area major low are key contributors to a base/reversal count that could be major in scope.  Historically bearish sentiment/contrary opinion levels are typical of such major base/reversal environments and contribute to this argument.

Against the backdrop of the secular bear market, we’d be foolish to ignore the prospect that Sep-Oct’s recovery is just another 3-wave, bear market correction, but a failure below at least 20-Sep’s (suspected 1st-Wave) high at 1.2624 is required to threaten a bullish count and resurrect a bearish one.  Per such, longer-term players are advised to use this 1.2624 level as our new long-term risk parameter to a bullish policy.

In sum, a bullish policy and exposure remain advised with a failure below 1.2810 required to defer or threaten this cal enough for shorter-term traders to move to the sidelines and circumvent the depths unknown of a steeper correction or resumption of the secular bear.  Long-term players are advised to require commensurately larger-degree weakness below 1.2624 to take defensive steps.  In lieu of such weakness, further and possibly accelerated gains should not surprise.

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