EURGBP long term Bear! And a broader market theme.

[Mercury]

I took another look at this pair, being unhappy with the big picture layout I had, and unhappy with the current rally as too strong to be a credible EWT 3-4 retrace.  I am now much happier with the set up as a large scale A-B-C, with the current rally being a wave B (see monthly chart below).  I believe this is about to conclude, though I can't be sure exactly where and it could possible have already concluded at the most recent high but the next week or two should tell this tale.  If and when it does turn this market will deliver a very strong wave C bear move, which could return all the way to the all time lows and maybe even beyond (circa 3000 points!)

 

The Fundamentals view

The prevailing beliefs are centred around the FOMC USD rate rise or not; a stocks & bonds bubble bursting or not; the ECB continuing to manipulate the markets with easy money and further negative rate moves in an attempt to devalue the Euro and boost the economy; post Brexit GBP collapse and ruination of the UK economy...

 

In my view, and based on a wide reading of opinion and my own analysis, I believe the following:

1. It doesn't matter whether the Fed raises rates or not the bubbles will burst because that is how the markets work.  King Canute showed us that no one can hold back the tide and yet the politicians and the central bankers think they can.  We know how that worked out for Gordon Brown...  A Fed rate rise in Sept would trigger or accelerate the bubble bursting and they must know it. which is why I don't think they will do it but they will signal once again that a rise will happen before the end of the year thus permeating the markets with initial relief (rally?) and ongoing fear of rate rises soon (fall?)
2. Q3 earnings will fail to produce the hockey stick forecast.  Probably the market will get wind of this or begin to fear it before the actual results start to trickle out (i.e. late Sept.early Oct).
3. BoJ will continue to try crazy stimulus and fail, spooking everyone else (this has already started I think).  Draghi & Co. will not believe it and keep going, actually fanning the flames of fears rather than calming things.  I mean if the worlds economies were recovering and "booming" as one city econimist said recently (what a *****!) then why would we need all this stimulus?  Ultimately it is self defeating, which is why the Fed is so torn about raising rates.
4. The EU will begin to implode off the back of key election losses (Merkel and Holland) and likely also in Spain and Italy, although they are already basket cases.  The Italian banking crisis will worsen and Grexit will come back on the table.  The EU army thing may well be a critical test of resolve...
5. Other geo-political events will gather pace: Syria, North Africa, Terrorism, Ukraine, South China Sea, North Korean nuclear testing, Venezuela implosion, US Presidential election polls swinging for The Donald etc etc
6. Brexit is a red herring issue and will actually insulate the UK from the worst of the global financial meltdown and in particular the EU shake out.

Technicals

The Monthly chart shows the A-B-C move with wave C yet to begin (or if it has, yet to be confirmed).  One could ask how this market could deliver such a strong bearish move in a post Bexit environment but as I allude to above, and have said since before the Brexit vote, I believe things are far worse for the EU than the UK.  Additionally if you compare GBP/USD and EUR/USD you will see that the Euro doubled in value vs USD since launch in late 1999 up to the Credit Crunch and since then has given back approximately half that value while the GBP only added about 55% and has given it all back.  Therefore all things being equal the GBP has less to fall vs USD than the Euro.  My target for GBPUSD is parity but I think EURUSD will fall much further below parity and may head back towards all time lows, if indeed it even survives...

 

The Weekly chart shows the wave B rally, which can be described as either a 1-5 or A-B-C, this is typical of wave B moves.  The market has already turned at the Fib 62%, hence my view that the top may already be in (in this case the labeling would credibly shift to the left and the A-B-C would be the dominant set up for this large scale wave B).  However if the set up is actually 1-5 another leg up is indicated.

 

Looking at the Daily chart we can see that the move since 6 July is contained within a strong tramline pair and there is strong Neg Mom Div on the 16 Aug high, supporting this as the Top.  However there are a number of possible ending scenarios as follows:

1. The Top is in at 16 Aug and we will see a EWT 1-2 retrace that falls short of that top.  This could also set up a Head & Shoulders Formation.
2. The Top is not yet in and we see a 1-5 move up to somewhere between the previous high (Fib 62% at 8700ish) and the underside of the Monthly chart Fib 23% (8830 ish).
3. We get a double top with another hit and turn near (+/-) the 62% Fib.

The trick now is to track this pair on the lower time frame charts to see which of the above scenarios plays out.  Timing the top may prove difficult unless scenario 2 is left as the final one so if you miss it another retrace should occur and depending on which scenario plays out a break of a suitable Ice line (H&S Neckline; Double top line; lower tramline pair) will offer a good Shorting opportunity.  It will also be important to watch the other two parts of the Triad for clues and neither are straight forward just now.

 

Look forward to thoughts and feedback.

 



[donaldprice]

Hi Mercury, I like your analysis on this pair, as long term I see that this will strengthen significantly, but it the mean time the target would most likely be from a weekly perspective the 0.886% from W-B on the weekly before heading lower.



[Mercury]

i don't think it will get that high   With these ending scenarios I find the tramlines are no longer relevant (except for the eventual breakout of course) so better to look for zones of resistance and the 8830 seems plausible.  There is a chance a lower turn will happen if the Top has already been put in so really we need to watch the Triad for clues.

[donaldprice]

If the top has began, which I have some doubts. although that 0.618% level on the weekly/monthly was eye catching, I would rather place a fib level from the previous bear rally and observe for either a double top, or a rejection of around 0.886% level from the previous high. Overall it regardless, long term this is a bear trade, but for now I would rather sit on the side lines, until more confirmation is gained.

[Mercury]

I agree waiting for Shorting opportunities is best for swing traders , too little upside now left for all but scaplers.  The trick is to track this market together with the rest of the Triad and wider market trends to identify likely turning points and be prepared to act.  As always with a major turning point there are 2 basic modes of operating here:

1. Pre-select likely turning points and if hit go short with tight stops
2. Wait for a confirmed turn and then seek appropriate entries

Good luck!

[donaldprice]

Looking at this pair something interesting seems to be catching my eye. If you notice on the 4 hourly chart, it appeared that we had a retracement or a zigzag before heading higher. Now before moving on i will state now that this previous move could we be a retracement as WC=2.618 x W-A. But the current move arguably could also be a retracement in itself (green alter W count) could be viewed as an ABC of almost = length. . Therefore the only way at present to confirm if this is a retracement or the continuation of a bull trend is if it surpasses the previous high.



[Mercury]

It could be an A-B-C alright  but it fits too neatly into the ascending tramline for me, I prefer to see a more dramatic A-B cutting the lower tram.  Therefore my bet is that we will see a EWT3-4 retrace followed by a final push to new highs and market top out.  I expect GBPUSD to rally next week while EURUSD remains sluggish or drops back to its lower Trangle line before rallying.

 

On this pair I will wait and see.

[donaldprice]

Most likely just a retracement of which be confirmed if it bounces from the 8546 level/0.38 fib level. Cable is also without doubt due for a rally. But gains over the short-medium terms will be limited in my view before a final drop. Fundamentally nobody knows how the Brexit talks will go. Theresa May really needs to put a lid on the foreign secretaries mouth, he seems to be the only politian i know that can move markets lol. Governor Carney was better of inviting Johnson to open is mouth at the BOE meeting in early August instead of cutting rates, both appear to have the same effect on cable. Been an interesting week regardless and ironically Corbyn won by the golden ratio of 61.8% and Smith by 38.2% now it appears fib levels work in politics too lol.