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EURUSD Setback Stalls Where Expected Per Broader Base/Reversal Count | RJO Futures

Posted 02/16/2017 8:43AM CT | RJO Market Insights

EURUSD

While the market has yet to recoup 08-Feb’s 1.0714 corrective high and our short-term risk parameter needed to break this month’s slide from 02-Feb’s 1.0829 high, it is very interesting to note that yesterday’s 1.0521 low came within only a few pips of BOTH the (1.0527) 61.8% retrace of Jan-Feb’s 1.0341 – 1.0829 rally and the neighboring (1.0526) 1.000 progression of the initial 1.0829 – 1.0640 decline from 08-Feb’s 1.0714 corrective high.  This is the exact area we discussed in last Fri’s Technical Blog as one to be watchful for a bullish divergence in short-term momentum needed to reinforce a major BASE/reversal count that contended this month’s setback was merely a correction following Jan’s initial (A- or 1st-Wave) rally.

Euro Index 240 min Chart

Euro Index Daily Chart

Traders are reminded that in 31-Jan’s Technical Blog we introduced a major base/reversal count in the Euro predicated on the following technical facts:

  • a bullish divergence in WEEKLY momentum stemming the broader downtrend from at least last Aug’s high
  • historically bearish sentiment levels
  • the market’s failure to sustain Dec’16 losses below Mar’15’s “major” 1.0462 low and former support and
  • an arguably complete 5-wave Elliott sequence down from May’16’s 1.1617 high.

IF correct and IF Dec-Feb’s rally from 1.0341 to 1.0829 was indeed the initial A- or 1st-Wave of a larger-degree correction or reversal higher, then by definition this month’s relapse needed to be a (B- or 2nd-Wave) corrective structure that stalled at a level north of Jan’s 1.0341 low, and prospectively in the area around the (1.0527) 61.8% retrace of Jan-Feb’s rally.  The market may be satisfying these exact requirements RIGHT NOW, defining yesterday’s 1.0521 low as a very tight but objective micro risk parameter from which non-bearish decisions like short-covers and cautious bullish punts may be objectively based and managed.  Again, more substantial proof of strength remains required above our short-term risk parameter at 1.0744, but the past 24 hours’ price action is encouraging for a broader base/reversal count.

These issues considered, traders are advised to move to a cautious bullish policy from 1.0600 OB with a failure below 1.0620 required to negate this specific call.  Subsequent strength above 1.0715 will reinforce this call and warrant ratcheting up a bullish policy ahead of what could be surprising, emotional-headline-resulting gains potentially well beyond 02-Feb’s 1.0829 high.  Such a bullish call on the Euro also fits very well with our bullish count on gold updated in this morning’s Technical Blog.

Euro Index Weekly Chart

 

USD INDEX

Dollar Index 240 min Chart

 

Given the extent to which the Euro comprises the USD Index, it is no surprise that the technical construct and expectations for the Index are equal but inverted to those detailed above in the Euro.  The 240-min chart above shows the market’s failure from the 101.55-area that marks both the 50% retrace of Jan-Feb’s 103.82 – 99.23 decline and the 1.000 progression of early-Feb’s initial 99.23 – 100.72-pop from 08-Feb’s 100.06 corrective low under what looks to be a 3-wave affair.  Left unaltered by resumed strength above yesterday’s 101.76 high and our new micro risk parameter this 3-wave recovery attempt is considered a corrective/consolidative structure ahead of a resumption of Jan-Feb’s preceding downtrend to eventual new lows below 99.23.

Further proof of weakness below our short-term risk parameter defined by 08-Feb’s 100.06 low remains required to confirm this month’s recovery attempt as a (B- or 2nd-Wave) correction within a major peak/reversal-threat environment from 03-Jan’s 103.82 high shown in the daily log scale chart below.

Dollar Index Daily Chart

Dollar Index Weekly Chart

Factors contributing to a MAJOR peak/reversal threat in the Index are shown in the weekly chart above and quarterly chart below include:

  • a bearish divergence in WEEKLY momentum
  • the market’s failure to sustain Nov-Dec’16 gains above a TON of former resistance-turned-support from the 100.00-area
  • historically bullish sentiment
  • an arguably complete 5-wave Elliott sequence from last May’s 91.92 low and
  • the Fibonacci fact that the rally from May’11’s 72.69 low spanned a length within a 1/2-pt of its (103.32) 1.618 progression relationship to 2008-09’s initial counter-trend rally from 70.70 to 89.62.

These issues considered, traders are advised to move to a cautious bearish policy from 101.00 OB with strength above 101.76 negating this specific count and warranting its cover.  In lieu of such 101.76+ strength and especially following a failure below 100.06, we anticipate a resumption of Jan-Feb’s downtrend to levels potentially far below 99.23 as part of a major correction or reversal threat to the secular USD bull.

Dollar Index Quarterly Chart

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