RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Only a glance at the daily chart of the euro below is needed to see the magnitude and impulsiveness of the past quarter’s impressive reversal higher.  For long-term reasons we’ll discuss below, it is quite arguable that the rally from 28-Sep’s 0.9592 low is the start of a base/reversal process that could be massive in scope, reversing a secular bear market that dates from 2008.  Within such a reversal however will be numerous corrective relapses of various scales that, especially “early” in the reversal process, could be extensive in terms of both price and time.  Per such, we want and need to beware of any bearish divergences in momentum that would at least defer if not threaten this initial counter-trend rally.

The developing potential for a bearish divergence in momentum is clear below, with a failure below 16-Dec’s 1.0586 smaller-degree corrective low confirming the signal to the point of non-bullish action like long-covers by shorter-term traders with tighter risk profiles.  Given the magnitude of the broader rally from 28-Sep’s 0.9592 low however, a sub-1.0586 momentum failure would be of an insufficient scale to conclude a larger-degree top.  Commensurately larger-degree weakness below 21-Nov’s 1.0243 larger-degree corrective low is required to break the (suspected 3rd-Wave) uptrend from 13-Oct’s 0.9675 low, let alone threaten the major base/reversal count.  Per such, we’re identifying 1.0243 as our new key bull risk parameter pertinent to longer-term institutional players.

Drilling down to an intra-day basis, the 240-min chart below shows this week’s continued but labored gains leaving smaller-degree corrective lows in their wake at 1.0634 and the aforementioned 1.0586.  Shorter-term traders with tighter risk profiles can choose whichever of these levels suits their personal risk profile.  Until and unless the market fails below these levels, the broader uptrend remains intact and should not surprise by continuance or acceleration.

From a very long-term perspective, the extent and impulsiveness thus far of the recovery from 28-Sep’s 0.9592 low is sufficient to conclude Janb’21 – Sep’22’s entire 1.2368 – 0.9592 a COMPLETE 5-wave Elliott sequence as labeled.  The combination of a bullish divergence in WEEKLY momentum amidst historically bearish (18%) levels in the Bullish Consensus (marketvane.net) reinforce this base/reversal count.

Of even greater and mega-term importance however is the prospect that the 5-wave decline from Jan’21’s 1.2350 high is the completing 5th-Wave of a massive 14-YEAR Elliott Wave sequence down from 2008’s 1.6040 high labeled in the quarterly log scale chart of the underlying cash euro below.  Reinforcing this complete 5-wave count is the Fibonacci progression relationship showing the prospective 5th-Wave down from 1.2350 coming within about a figure of the (0.9416) 0.618 progression of the net distance of Waves-1-thru-3 (1.6040 to 1.0341).

If correct, this wave count warns of a multi-YEAR reversal in the euro that could easily retrace 38.2%-to-50% of 2008 – 2022’s entire 1.6040- 0.9537 decline that would project to the 1.16-to-1.23-area.  WITHIN such a major base/reversal count however could be (2nd-wave) corrective relapses that could be extensive in terms of both price and time.  One need only look at the 2-1/2-YEARS of extensive 2nd-Wave volatility and recovery that followed 2008’s 3Q and 4Q initial 1st-Wave decline to see how messy and frustrating major reversal processes can be.  Until and unless this market confirms a bearish divergence in momentum of a scale sufficient to break the uptrend from 13-Oct’s 0.9675 low however (i.e., a failure below 1.0243), the longer-term trend remains up and is expected to continue.

These issues considered, a bullish policy and exposure remain advised with a failure below 1.0586 required for shorter-term traders to take profits and step aside and commensurately larger-degree weakness below 1.0243 required for longer-term institutional players to follow suit.  In lieu of such weakness, further and possibly accelerated gains remain expected.

Colleen Hudon