EURUSD Where next?

[Mercury]

I was all set for a long term short campaign on this pair until I started reviewing all the relevant USD crosses (see Dollar basket thread) and now I'm having second thoughts.  Could really use some broader views from people here.

 

That this pair has been in an extended consolidation phase since Mar 2015 is indisputable but I am not so sure that this has recently broken out downward as my previous analysis was suggesting to me.  Traditional chartist lore has it that a breakout and retest with a bounce away in the direction of the initial breakout is a strong signal (bearish in this case).  However fakeouts cannot be dismissed and although the obvious set up remains with a long term move down I can't sake the feeling that a higher high wave 4 is on the cards (maybe because it is so obvious?).  So 2 scenarios are apparent to me as follows:

 

1. The market returns to the breakout Triangle line and is rejected back down to begin a long term bearish move (Nov 8/9 seems like the pivotal point here
2. The lower line blue line is the true Triangle and no breakout has yet occurred thus a rally at least back to the top triangle line is on and possible a breakout at the top line to bring up a W4 turn at the Fib 50% or above.

I was Short at the Triangle breakout but given the strength of the turn back up, with an inside bar fakey [price action] and a compelling complex retrace EWT count on the Weekly suggesting a wave B turn on Friday I cannot justify holding the Shorts.  Also the massive uncertainty and likely volatility surrounding the US election is sufficient to cash and wait in my view.  Note also the move between 3 May [red a] and last Friday [red b] is not showing a clear wave pattern or at best an A-B-C (all synonymous with wave Bs).

 

The final piece of the jigsaw puzzle is the extreme Bearish non commercials COT position last Tuesday followed by the sharp turn and rally on Friday (a classic contrarian set up).  The nature of the rally over the coming week into the US election will hopefully reveal more but for now I am in a wait and see mode.  A strong rally to new wave 4 on EURUSD would fit with the strong retrace to new W4 on DX and the Wave Bs on CAD and CHF.  As a contrarian I seek set ups that fly in the face of received wisdom and this is possible just such a situation.

 

On balance therefore I am seriously considering scenario 2 as most likely and will seek a Long entry on a suitable retrace if presented.

 

Very keen to hear what others think.

 



[donaldprice]

I too been questioning this trend, We know from a US political stand point a Trump win would cause a rally in the EUR. The market is very heavily short on the EUR and longs on the DX have hit an extreme longs not seen for >6 months. Although on the 4h it broke through my channel, on the daily i am still looking for a potential bounce around the 106 area. Unless we receive poor data or hints that the FED are skeptical about raising rates and Dragui starts hinting about the end of QE stimulus, the euro should continue lower, but i am expecting a bounce as this triangle can only be concluded if it surpasses the 105 level.



[Mercury]

EURUSD has now retraced to the original Triangle breakout line for a retest and so far has been repulsed.  For the EWT 3-4 to be valid it must turn here.  Any confirmed break through this area to the upside brings up the second scenario of a longer rally.  On the Hourly chart there is a possible A-B-C EWT count, NMD and a possible Triangle breakout supporting Shorts at this area, at least for a temporary retrace and then we will look again.

 



[Mercury]

My initial assessment was for this pair to retest the Triangle breakout resistance area, which is where we reached at the end of Friday, so far so good.  However the nature of the rally was strong and in a potential 1-5 wave form, which is not synonymous with a retrace action (i.e. not A-B-C).   So if I go back to torture test my original thesis I find 3 scenarios exist as follows:

 

1. The retrace rally is repulsed and the bear move resumes long term BUT this requires a major USD rally and I am just not convinced we have this in play yet.
2. The market pushes through into a stronger rally negating the Triangle breakout.
3. The retrace rally is repulsed but only as a wave A or 1 of a stronger move up, after which we would see a wave B or 2 down and then a strong rally through the Triangle back towards the upper Triangle level, which, if broken, brings up the possibility of a higher large timescale wave 4 (blue) high.

Of these 3 I favour #3 as a contrarian play because when sentiment is too far to one side you either get a mega crash or a reversal and I do not think we are ready for a mega crash (unless the Donald wins I guess...).  COT is very heavily biased towards  Euro weakness (or USD strength), not all time bearish the Euro but close.  On the 4 Hourly chart the most likely turning point is actually above the Triangle line at an area of strong long term resistance (Monthly chart Fib 50%) and any retrace is more likely to descend back to the Fib 50 or 62%, unless it turns at the triangle in a shallow retrace, which would herald a strong move up.

 

Given short term risk and potential whiplash volatility I am minded to wait and see on this pair and if we do get an A-B move seek to get in long on the eventual wave C back up.  If scenario 1 is right then catching the turn would be a good play but then there is that pesky election again, argh!