Yesterday and today’s relapse below 07-Oct’s 1.1741 corrective low confirms a bearish divergence in bearish divergence in momentum that defines 09-Oct’s 1.1848 high as the END of the recent recovery attempt from 25-Sep’s 1.1630 low and new short-term risk parameter from which shorter-term traders with tighter risk profiles can base non-bullish decisions like long-covers and resumed bearish punts. This admittedly short-term prof of weakness resuscitates what we believe is a larger-degree peak/reversal process from 01-Sep’s 1.2015 high that warns of relatively extensive losses in what could be the months ahead.
The past couple days’ short-term weakness remains a subset of a broader peak/reversal threat from 01-Sep’s 1.2015 high that remains predicated on:
- early-Sep’s bearish divergence in daily momentum that broke at least Jun-Sep’s portion of this year’s impressive bull trend
- the market’s run-up to and rejection of the (1.2025) upper-quarter of its massive 4-year latera; range
- historically frothy bullish sentiment not seen since at least the Feb’18 period that warned of and accompanied that month’s 1.2580 peak and major reversal and, in the case of the Bullish Consensus, since May 2014!
- this year’s rally from a 1.0671 low spanning a length with a few pips of its (1.2038) 0.618 progression of Dec’16 – Feb’18’s preceding 1.0367- 1.2580 rally.
These technical facts contribute to a peak/reversal count that warn of an intra-four-year-range relapse that could span months and easily produce deeper in the middle-half of this range around a 1.14-handle or lower. On this broader scale, and clearly, a recovery above 01-Sep’s 1.2015 high and key risk parameter remains required to negate this count and resurrect the major bull.
These issues considered, a bearish policy remains advised for long-term players with a recovery above 1.2015 required to negate this call and warrant its cover. Shorter-term traders are advised to return to a cautious bearish policy and exposure from 1.1740 OB with a recovery above 1.1848 required to negate this call and warrant its cover. In lieu of such 1.1848+ strength, we anticipate further and possibly protracted losses straight away.
DEC CANADIAN DOLLAR
From a short-to-intermediate-term perspective, the technical construct of the CAD is virtually identical to that detailed above in the euro with Tue’s 0.7635 high and 01-Sep’s 0.7696 serving as our short- and longer-term risk parameters from which a bearish policy and exposure can be objectively based and managed commensurate with one’s personal risk profile.
Two difference exist between these two markets on a longer-term basis however: the CAD’s position still deep within the middle-half bowels of its massive four year range and market sentiment/contrary opinion levels that are neutral/indifferent-to-still-historically-bearish. Indeed, at a mere 23% reading reflecting just 12K Managed Money long positions to 41K shorts reported to the CFTC, this sentiment indicator remains arguably a supportive factor to the CAD. Nonetheless and in light of today’s bearish divergence in short-term mo coming on the heels of the past month-and-a-half’s peak/reversal threat, we anticipate further lateral-to-lower prices in the weeks and perhaps months ahead until challenged by a recovery above at least 0.7635.
Traders are also reminded of the greater odds of aimless whipsaw risk typical of such range-center environs that warrant a more conservative approach to risk assumption and highlights tighter but objective risk parameters like Tue’s rejected 0.7635 high.
In sum, a bearish policy remains advised for longer-term payers with a recovery above at least 0.7635 and preferably above 0.7696 required to pare and then neutralize exposure. Shorter-term traders are advised to move back to a bearish policy and first approach recovery attempts to 0.7595 OB as corrective selling opportunities with a recovery above 0.7635 required to negate this specific call and warrant its cover. IN lieu of at least such 0.7635+ strength, further and possibly protracted, if intra-range losses to the 0.73-handle or lower are anticipated.