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Eur rally on the cards?


Mercury

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There hasn't been much chatter on this pair for a while, unsurprisingly given the extended complex nature of the retrace over the past year and a half.  The received wisdom is that the Euro is going down and the COT data from last week shows a resurgence in bearish stance after a brief respite over August.  Given a constant stream if negative press and the negativity of press comments at Draghi's last press conference there is little to be optimistic about and yet as a contrarian I am left wondering if we will see a strong rally before the next leg down.

 

The long term time frame chart shows a retrace Triangle with a possible A-E form (a final touch at E would begin the next wave down) however there is an alternative view that would call for a higher wave 4 end that the Aug 2015 one with a rally up towards the Fib 38% and possible the Fib 50%.

 

On the hourly chart a retest of the previous ending diagonal breakout line (blue) is on or possibly just above at the Fib 76% area and if a Pos Mom Div occurs coincidentally then a rally could be on, which could go for quite a long run up.  This would match my view that the USD is in for a fall prior to the long awaited rally and that the fall in stocks and rally in USD is a short term thing.

 



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It seems to me that the EURUSD rally has been delayed and a move down towards the lower Triangle line is now in play.  Whether this is the beginning of a major Bear move or just a precursor to a rally remains to be seen and I remain highly Bearish the Euro long term and see a move further down than parity and possible towards all time lows as the EU and Eurozone comes under severe pressure.  However in the short to medium term I still feel there will be another rally before the Bear gets its claws into this pair.

 

The Fundamentals

Please see my post on EURGBP for this

 

The Technicals

On the weekly chart there is a clear Triangle formation to the retrace but there are 3 possible resolutions as follows:

  1. The wave 4 is already concluded in Aug 2015 and the remainder is a staggered 1-2 move
  2. Similar to the above but the remainder of the retrace is b-c-d-e pink labels)
  3. The wave 4 is not yet concluded and is a complex retrace that ought to end higher that Aug 2015 high

 

Under scenario 1 price should cut the triangle lower line and fall away, this could happen on the current move down on or around the FOMC announcement perhaps if USD rates are in fact increased.  Under the other 2 scenarios price should bounce back off the Triangle line and rally away towards the top line.  You can see a close up of the latter part of the Triangle on the Daily chart.

 

Given that EURGBP looks like it has some more rallying to go and GBPUSD looks set to rally again at some point next week it seems that EURUSD should also rally.  Obviously a Fed rate rise and USD rally next week negates all of this.  The interesting thing to watch out for is whether we see a pre FOMC rally or it happens after the announcement on rates.  In the latter case we could see vacillation on FX pairs over the early part of next week with a slight general drop vs USD to the critical turning points (or breakout points as the case may be).

 



 

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So 1 year and 1 month so far and € $ still in this triangle and i expect that we will continue for a few months more, possibly a turn to the downside for W5 before Christmas. But if you look at the DX it is following a very similar pattern, if not almost exact. Therefore for the long term a rally in the dollar will almost certainly finally bring the EUR down to the €0.84-$1. But for now the serious question is are we going to see the long awaited C wave to bring this pair towards the 115 level area. Since the FED on Wednesday decided not to increase interest rates yet again, €$ has been making a clear ABC truncated flat. I therefore would want to look for a pullback from the possible W1 of C around the golden ratio possibly before heading higher.

Any alternative views would be very much welcome of course.



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EURUSD rally may be put off for a bit as just like GBUSD it hasn't hit the lower Triangle and that would be a better set up for a final rally.  The post Fed rally has been week and a reversal seems on the cards.  Additionally I see EURGBP coming into a retrace phase, which could occur with a strong GBP rally and EUR going sideways.  However unlike GBP the COT data for last week went further bearish so we may seem some softness before a rally and EURJPY looks bearish while GBJPY looks more bullish.  Having said that this one could go either way...

 



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If it were to head towards towards the triangle line it really would have to smash through the current support you have labelled in green, then the .786% level would be the obvious Fib level support. But i have some doubts that this would occur as the current pattern does appear to be a strong ABC truncated flat. But as stated it really is best to wait for this to develop, but right now i cannot really see an alternative w count, then again been righting a few threads so far this evening, so may best try again later once my head is cleared, lol.

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  • 2 weeks later...

EURUSD may also be coming up on a moment of truth after a very long consolidation/retrace period of difficult whiplash trading.  There is a clear Triangle formation to this move that is seriously narrowing now and one way or another this should breakout soon.  

 

2 scenarios on offer:

 

  1. The market travels down to the lower line and rallies away back up offering then 2 retrace scenarios:
    • First, containment within the Triangle upper line at point E (pink label) completing a classic coiling triangle move culminating in a sharp drop.
    • Second, a breakout to the upside resulting in a higher high wave 4 termination followed by a wave 5 drop
  2. The market breaks the lower Triangle line and heads down to who knows where.  As I have said before parity may just be a way-station on the road to ruin for the Euro...

I don't really see a long term strong rally up, all scenarios point downward to me.

 



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Technical analysis cannot predict data releases but the markets try to do exactly that and technical analysis analyses what the markets do sooo...  Anyway for the bounce to hold USD must weaken and that requires a lower than consensus NFP print.  If we get a print over 200k then I guess the USD takes off right?  And yet I can't see that happening until the bond market throws a hissy fit but what would be the final straw for the bond market?

 

I'm guessing we will have to wait a bit longer for the whole house of cards to begin to creak.  By rights it should come on a Fed FOMC day rather than NFP but markets are fickle...

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So NFP was lower than expected and more in line with ADP plus previous prints were revised a bit down right?  All hail the power of the Fed policy, not even the dubious NFP data is going their way, unless they were praying for this so they don't have to raise rates but then how does their policy look in terms of efficacy...?  How long can markets continue to rally on bad news?

 

Anyway never mind all that, let's just look at the technicals, although that NFP backdrop does support a softening in USD off the back of diminishing Nov rate rise chances (Dec still out there though).  We have a couple of weeks til FOMC and Q3 earnings season begins tomorrow.  It will doubtless take some time for the realities of Q3 to bite and I anticipate some whiplash across all affected markets until a clear direction is established.  For EURUSD the bounce off the lower Triangle line, a long term support line, is supportive of a move up towards the upper Triangle line and a possible end to this very extended and drawn out retrace.  The Hourly chart indicates a small wave 1 (green) is done and wave 2 retrace is nearing conclusion (green).  Alas in these Triangle consolidations you can never really tell and while normally Fib 62% is a strong candidate for a wave 2 retrace conclusion I could easily see 76% or even another touch on the lower Triangle (which obviously brings with it the chance of a breakout down, it will happen eventually!).  Still for now at one of those points I expect the retrace to complete and rally away in wave 3.  We have already seen a Pos Mom Div at the previous low and Triangle touch and now have Stochastic in over-sold with RSI approach same.  If and when they spin back up out of over-sold at a decent turning point then the next rally could be on.

 

If we do get a EURUSD rally then GBP and JPY are likely too.  We already have CAD rallying against USD but perhaps that is more Oil driven just now.  DX is stalling near a second touch on the upper Triangle resistance as well so all-in-all the scene is set for rally against USD for a little while.

 

Got a different view?  Please share.

 



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