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Favorable Risk/Reward “Down Here” in Euro

Posted 02/26/2019 8:04AM CT | RJO Market Insights

In 19-Feb’s Technical Webcast we discussed that day’s bullish divergence in admittedly short-term momentum from the extreme lower recesses of the past quarter’s range.  The mere languishing price action since then contributes to a base/reversal count on at least a smaller scale, reinforcing 15-Feb’s 1.1261 low as a tight but objective risk parameter from which a bullish policy can be objectively based and managed.  And given some key developing bullish factors just updated in this morning’s British pound Technical Blog as well as the EURGBP cross’ reversion to the lower recesses of its past couple years’ range, we believe the risk/reward merits of a bullish policy “down here” in the euro are very favorable.

Euro FX Mar '19 240 Min Chart

 

Euro FX Daily Chart

Technical facts that contribute to a base/correction/reversal count include:

  • the market’s current proximity to the extreme lower recesses of the past quarter’s range
  • waning downside momentum dating back to last summer
  • historically bearish levels in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC

We’ll leave our count of an arguably complete corrective wave sequence down from Feb’18’s 1.2580 high out of a list of technical FACTS as any analyst’s interpretation of the theory is obviously subjective.  But this count is nonetheless as good as any other and, most importantly to our contention, clearly and simply requires a relapse below 15-Feb’s 1.1261 low to negate.

If our count is wrong, the market will fail below 1.1261.  If its right, the market has the prospect to at least rebound to the upper recesses of the recent range and, perhaps, resume 2017’s uptrend to new highs above 1.2580.

Euro FX Weekly Chart

 

Euro FX Monthly Chart

As with sterling, traders are reminded that the extent and impulsiveness of 2017’s rally, in fact, broke the secular bear market.  This defines Dec’16’s 1.0367 low as THE END of the secular bear market from Jul’08’s 1.5988 high.  To negate this contention al the market has to do is break below 1.0367.  A relapse below Nov’s 1.1245 is an obvious precursor to such a bearish count.  Until and unless this market relapses below at least 1.1245, the prospect exists that the relapse from Feb’18’s 1.2580 high is “just” a (B or 2nd-Wave) correction within a major, multi-year BASE/reversal process to eventual new highs above 1.26.

Has the past couple weeks’ admittedly minor price action started such a bull?  Of course there’s no way to conclude such a major move from such minor price action.  What we DO know with specificity is where the market has to trade to negate this call:  below 1.1261.

Finally, the weekly chart of the EURGBP cross below shows this market’s erosion to the lower recesses of its past couple years’ range where the vulnerability to a reversion to the range’s middle-half cannot be ignored, arguably making a better bullish case for the euro than sterling.

These issues considered, a bullish policy and exposure from current 1.1390-area levels OB is advised with a failure below 1.1260 required to negate this call and warrant its cover.  In lieu of such weakness we believe this market has significant upside potential.

Euro/British Pound Weekly Chart

RJO Market Insights