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Navigating Euro Correction-vs-Reversal Debate a Matter of SCALE

Posted 10/10/2019 7:41AM CT | RJO Market Insights

Overnight’s break above 04-Oct’s 1.1058 initial counter-trend high resurrects the correction-vs-reversal debate that began with 03-Oct’s bullish divergence in very short-term momentum discussed in 03-Oct’s Technical Webcast.  This resumed strength leaves Tue’s 1.0992 low in its wake as the latest smaller-degree corrective low this market is now required to sustain gains above to maintain a more immediate bullish count.  Its failure to do so would render the recovery from 01-Oct’s 1.0938 low another 3-wave and thus corrective affair consistent with the still-arguable major downtrend.  Per such, this 1.0992 low is considered 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.

From a broader perspective, this month’s recovery attempt still falls well within the bounds of another mere corrective hiccup within the major downtrend from Feb’18’s 1.2580 high shown in the weekly log chart below.  Market sentiment/contrary opinion remains understandably at historically depressed levels typical of major BASE/reversal environments, but traders are reminded that contrary opinion is not an applicable technical tool in the absence of an accompanying bullish divergence in momentum of a scale sufficient to buck the broader downtrend.

In this case 13-Sep’s 1.1184 next larger-degree corrective high remains intact as our key long-term risk parameter this market is minimally required to recoup to confirm a bullish divergence in daily momentum needed to break the downtrend from even 25-Jun’s 1.1486 high, let alone the massive 20-month bear from Feb’18’s 1.2580 high.  From this longer-term perspective then and for longer-term players, this month’s recovery attempt is advised to first be approached as another corrective selling opportunity similar to many, many such “slightly larger-degree pops” that have littered this major bear trend for the past year.  In effect, the market has identified 1.1184 and 1.0992 as the key directional triggers heading forward.

These issues considered, shorter-term traders are advised to move to a neutral-to-very-cautiously-bullish stance from 1.1050 OB with a failure below 1.0992 required to negate this call and resurrect the major bear trend.  Long-term players remain advised to maintain a bearish policy and exposure with a recovery above 1.1184 required to negate this call, warrant its cover and expose a base/reversal count that could be major in scope.  We will be watchful for a recovery-stemming bearish divergence in short-term momentum from the 1.1090-to-1.1100-area to reject/define a more reliable high and objective risk parameter from which a favorable risk/reward selling opportunity may be presented to short-term traders.

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