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Mo Failure Stems Yen Slide, Warrants Cover; Euro Bull Reinforced

Posted 10/31/2019 8:00AM CT | RJO Market Insights

DEC JAPANESE YEN

The market’s failure today to sustain recent losses below 23-Oct’s 92.69 minor corrective high and our short-term risk parameter confirms a bullish divergence in momentum that defines yesterday’s 91.74 low as one of developing importance and the end of at least a textbook 5-wave Elliott sequence down from 04-Oct’s 94.47 high as labeled in the 240-min chart below.  As a result, yesterday’s 91.74 low serves 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 daily bar chart above and close-only chart below show the bullish divergence in daily momentum that allows us to conclude the end of at least Oct’s portion of the past 2-1/2-months’ broader slide.  Commensurately larger-degree strength above 04-Oct’s 94.50 larger-degree corrective high and key risk parameter remains required to break the broader downtrend and conclude a complete 5-wave decline from 12-Aug’s high.

Former upper-92-handle-area support remains intact as a new resistance candidate the market needs to recoup to raise the odds of a larger-degree correction or reversal higher.  But we gotta say that Aug-Oct’s entire decline, especially on a close-only basis below, looks to be a textbook 5-wave Elliott sequence as labeled.  And f correct, we could be looking at a more protracted corrective rebuttal in the weeks ahead that could easily approach the 94-handle or higher.

While our broader peak/reversal count introduced in 05-Sep’s Technical Blog remains intact until the market closes above 12-Aug’s 95.76 high close, the momentum and Elliott factors discussed above are a sufficient deferral or threat to our broader bearish count to warrant taking profits on bearish exposure recommended from 93.50 OB in 09-Oct’s Trading Strategies Blog and moving to a neutral/sideline approach for the time being.  And if the market retests yesterday’s 91.74 low is a labored 3-wave manner, we believe the risk/reward merits of an interim bullish punt will be favorable.

DEC EURO

Overnight’s recovery above 24-Oct’s 1.1200 smaller-degree corrective high and our short-term risk parameter reinforces our bullish count updated in yesterday’s Technical Blog and leaves Tue’s 1.1108 low in its wake as the end or lower boundary of 3-wave corrective/consolidative behavior from 21-Oct’s 1.1222 high that warns of a resumption of the uptrend that preceded it.  Per such, this 1.1108 low is considered our new key risk parameter from which a still-advised bullish policy can be objectively rebased and managed.

From a longer-term perspective we remain of the opinion that the extent and impulsiveness of Oct’s recovery thus far is only the initial (A- or 1st-Wave) of a larger-degree correction or major reversal higher.  And given the magnitude of the 19-month downtrend from Feb’18’s 1.2580 high that the market’s trying to reverse, traders are warned that this base/correction/reversal PROCESS is not unlikely to include corrective setbacks that could be extensive this early in the base/reversal process.  We will use Tue’s 1.1108 low as a relatively tight but key risk parameter around which to gauge such corrections or even a resumption of the 19-month downtrend.  Until and unless such sub-1.1108 weakness is shown however, our long-term base/reversal-threat factors listed in recent updates- like historically bearish sentiment levels- remain intact and warm of what could be surprising gains in the weeks, months and even quarters ahead.

In sum, a bullish policy and exposure remain advised with a failure below 1.1108 required to defer or threaten this cal enough to warrant moving to the sidelines.  In lieu of such weakness, further and possibly accelerated gains should not surprise.

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