EUR/GBP/USD Triad

[Mercury]

Took another leg up as EUR dithers about but as it no looks like going bearish EURGBP finally seems to be moving down after a series of 1-2s and an effective mini double top.  To be confident I will want to see a break of the ST support and a 1-5 down followed by an A-B-C retrace and then a further larger drop through the daily chart lower channel line.

[Mercury]

Looks like EURUSD may be making a move to resolve short term consolidation, to the downside, although as I write price is poking back inside the zone so maybe a fakeout.  GBP has caught a bid after a sharp sell off; notably the non commercial COT data for last week reflected a net bearish position on triple digits for only the second time since 2007.  The only other time was in March 2017 just as GBPUSD went on a 2000+ points rally.  With the market too heavily weighted to one side the odds favour a reversal (or a total collapse).  To see a total collapse we would really need to see a massive USD rally for me and I don't think we are there yet.  The GBPUSD charts don't show much of use yet but I will be watching for a reversal signal here and ideally want to see EURUSD and other related pairs trending up against the USD as well.

Another clue could be the EURGBP pair, although both EUR and GBP could go down against USD with GBP going less dramatically and thereby producing a bearish move in EURGBP.  However my thesis is for the initial stage of such a bearish move to be driven by a retrace rally in both EUR and GBP vs USD.  I would happily take either scenario though...  As I have said previously my feeling is that GBP is oversold vs EUR and MSM articles promoting doom and gloom on GBP vs EUR are at extreme levels also, a contrarians signal to get ready for a reversal.  So COT and MSM are signalling reversal from oversold levels and oscillators are all in oversold territory from weekly time frames down.  A long on GBP would be speculative right now so I am waiting for a 1-5 up and A-B-C down and rally to signal a reversal of trend.

So looking at the technical set up on EURGBP, I have adjusted my long term to eliminate the consolidation triangle and now have a complex 1-2 (pink) retrace on my weekly chart.  Price has reached the Fib 88% off the Oct 2016 highs that was repulsed with a massive pin bar and has slightly surpassed the Aug 2017 high, making this a possible A-B-C in complex form (lots of internal A-B-Cs).  The price action since before Oct 2017 is contained within a range (see Red and Green lines) and the upper range is quite close so any Shorts would have a fairly low exposure.  However I would not suggest a trade until there is a breakout signal on shorter term time frames.

On the daily chart I have an up-sloping channel that was broken to the upside but price has now returned back inside in a possible fake-out (need a daily candle close back inside the channel to confirm).

On the 1H chart there is an additional channel (light blue lines) that conforms to an ending channel configuration and in this case the fake-out does have a close back inside on the 1H chart (less convincing than a Daily close but still indicative and worth watching).

I am looking for a breakout of the 1H channel with a motive (1-5) wave down and possible a retest of the channel breakout zone with an A-B-C form.  If this happens and then price is rejected back down swiftly from the retest to create a failed retest then the Bear is on and maybe GBP rally is also on.

 

[Mercury]

The overshoot and return inside the channel proved to be an exhaustion spike as EURUSD dropped to its potential retrace turning point and GBPUSD put a bit of a breakout rally on.  I now expect both to rally, although short term GBP may continue a bearish retrace before accelerating past EUR.  This is the scenario I have been waiting patiently and probing for many months.  Fortunately I was sticking with my game plan and was able to take advantage of the EURGBP breakdown as price reentered the daily channel and broke through a short term channel.  Price put in a couple of failed rests and then dropped sharply away over the balance of last week.  I expect this move to continue to at least the lower channel line and then we will see if there is a breakout here or not.  That is phase 2 for me, phase 1 was catching the breakdown, job done.

My plan is to sit on my Shorts, stop protected at break even, and look to pyramid sell the rallies once I see a conclusive breakdown here and elsewhere (i.e. very strong GBP rally or very strong EUR collapse).  I favour the former as I do not think we are quite at the Armageddon point, as discussed on my Gold/Silver thread, but after some more FX war engagements I think we will see this and I firmly believe the Eurozone is intrinsically weaker than GBP, due mainly to the EUs structural issues rather than the UKs strength.  Note, while the UK was never in the Eurozone it was obliged to chip in to help out with economic issues so now that the UK is out it will not have to help bail out the chronically weak Eurozone banks and a failing currency.  I wonder whether the remoaners will thank the leavers for this in the end, I doubt it but surely historians will chronicle the debacle faithfully in due course.  History is written by the winners after all...

 

[Mercury]

With the breakout of GBPUSD (would like to see a daily close above support there and ideally a breakout through the daily channel line) and EURUSD making up its mind about whether to breakout or not I look at the third pair in the Triad for clues.  My thesis is that when both of these markets rally it will be on USD weakness rather than intrinsic strength in either one BUT as GBP has been more depressed of later and with so much negativity around about GBP vs EUR the spring back relief rally will be stronger on GBP.  If right we should see EURGBP turn and drop fast and hard and continue to do so for at least as long as the primary pairs rally lasts.

And that is what we have seen so far with what looks like an exhaustion overshoot of my daily chart channel line and drop back inside.  A drop away from this area is confirmatory of an exhaustion spike, and that is what we got.  There followed a small 1-2 retrace, relief rally, which retested the channel line but failed to break back though, and another small 1-2 before a short term channel (1H chart) break and failed retest and then we were off to the races.

Recently there has been a consolidation in what could be a small pennant of another 1-2, probably the latter and then a fast break down from this formation to where we are now, testing the lower daily chart channel.  If I am right about a period of USD weakness then I would expect EUR to join the party soon and so we may see a relief rally off the daily channel lower line before a confirmed break.

Worth watching the Triad to see how things progress over the coming days and during the Jackson hole panto.

[Mercury]

This pair has just completed a wave 1 down (1-5 form with a nice pennant in the middle) and has turned up sharply on GBP jitters after a brief fakeout of the daily chart lower channel line.  There was PMD at the turning point and now I would anticipate a retrace move to wave 2 (brown) in some form of A-B-C pattern.  I am targeting the fib 62% resistance zone initially but may update as price action progresses.  

[Mercury]

To complete the Triad analysis, EURGBP didn't retrace quite as far as I thought it might, which means GBP is stronger vs EUR and USD than I thought.  We have a confirmed break of the channel and the next level support.  If this is a wave 3 I expect it to run and run defying all the news bait GBP doomsday prattle.

[Mercury]

Got a small retrace early doors but looking like a confirmed break of support now to me.  I am looking for a test of the 8900 support zone next, where we may see a little consolidation price action if we get retraces on the primary pairs vs USD.  My thesis for EURGBP major bearish phase was predicated on being kick started by overall USD weakness as GBP, having dropped harder vs USD, would rally harder.  If the recent turns on both the primary pairs were indeed retrace turning points then a strong bearish move on EURGBP is my lead scenario.  So far this has been playing out since I got Short off the overshoot.

My strategy is for this pair to be a long term Short play while the primaries are medium term retrace rallies.  After they complete USD should rally hard as all hell breaks loose but the Euro will do infinitely worse as the UK will be out of the EU by then and insulated from the structural weakness in both the EU and the Eurozone.  GBP will see parity with the USD, maybe worse but for the Euro there could be an existential crisis in the form of countries line Greece, Portugal and Italy, maybe Spain withdrawing from the Euro in a bid to take back control of their failing economies.

[Mercury]

To complete the Triad picture, EURGBP seems to be setting up to hammer down in a wave 3, despite the prevailing MSM mood that GBP is going to reach parity with the Euro because of Brexit (sigh!).

I want to see a break of the next support zone (circa 8850) and then I think the end of the initial wave 1 off the Pink 2 top might occur around the 8500 support level or below this.  My assessment is for a long term Bear market against the Euro starting now.

 

[Mercury]

After a fair bit of hesitation/consolidation whip saw on EURGBP the recent ECB rate decisions seem to have injected more downward pressure on this pair as the Euro sold off vs USD and GBP held its ground.  I am sure Fed meetings to come will play a big role in this Triad but for now, looking solely at EURGBP at least, the bearish move looks set to continue.  Important support zone is coming up between 8890 and 8860.  A break of this support will have me looking at 8500.  But I would really be wanting to see a strong break of support here as a wave 3 should be strong and fast.  If we see hesitation around the current support level a relief rally could ensue, which would take the market back above 9000.

[Mercury]

I noted with interest the IG analyst assessment before and during the ECB announcement.  He suggested that the upward trend on EURGBP was still intact and went for a buy the dips view, predicated on Brexit bad (gross summary of what he said of course).  He also suggested sell EURUSD, I am Long.  From my chart analysis on EURGBP I see the trend as having reversed; I see no sign of a continuation trend here.  In fact price has broken the recent rally channel after a Fib 88% turn at wave 2 (pink) and is now approaching the bottom of the parallel channel.  Given the strong rally on GBP it would not be a massive surprise to see this market break this next channel and head on into a long term bearish trend.

However before that happens, and in line with my FX analysis on other markets, including DX, I might expect a retrace rally here to prime the pumps for a big move south.  A strong break of the lower second channel line would negate that view and be a Short event for me but then I would expect to be seeing a continuation of the EURUSD retrace down and a strong breakout rally on GBPUSD.  The run up to the Fed announcement could be just as important as the event itself...

[Mercury]

Looks like the 1-2 (brown) retrace I was tracking is occurring.  So far this pair has gone according to my route map, once the turn occurred (at the last chance saloon of the Fib 88%) the move down has been steady and in what I see as a 1-5.  We should now see an A-B-C retrace that may carry to the Fib 50% or a bit higher into the prior channel retrace zone.  I have adjusted my upper channel line to hit the top at the Fib 88% more exactly, which then allows for an equidistant parallel channel line below where the recent turn occurred.  This turn was accompanied by PMD but not a strong one, which is more consistent with a temporary retrace than a long term trend change.

Originally my thesis for this pair consisted of a contrarian stance on the MSM dire warnings on GBP as a consequence of Brexit, which I believe to be spurious (albeit short term moves do seem to be impacted but I don't think it will be an issue long term).  I felt that a bearish move on this pair would coincide with a strongly bullish phase for GBPUSD, and a weaker one for EURUSD.  So far we have had that strong move on GBP but EUR seems to be lagging (i.e. hasn't triggered yet, so might anytime now).  I expect that to reverse as GBPUSD has a bit more downside to go yet while EURUSD may go sideways or up from here (not ruling out a slight lower low yet).

Whatever combination occurs on the main USD pairings of the Triad I expect a bullish relief rally on EURGBP but when concluded we resumption of the Bear market is my expectation and a wave 3 will be strong and last a long time, in defiance of the received wisdom as the Euro comes under existential crisis.  I believe GBPUSD will also go down but not anything line EURUSD long term.

 

 

[dmedin]

On 14/09/2019 at 15:48, Mercury said:

He also suggested sell EURUSD, I am Long

Notwithstanding the fact that the IG analysts generally make terrible suggestions, can I ask why?

Is it because of EWT considerations?

I was under the impression that forcing all price action into EWT while ignoring everything else was 'an abuse of the theory', especially if it causes one to trade against the trend.

[dmedin]

This is more like it - keep the faith!

 

 

[Mercury]

I am not trading this pair at the moment as the bigger rewards are elsewhere but it is instructive to corroborate my assessments of the related USD pairs.  I think we have seen the completion and breakout of a Flag formation that, if correct, would signal a wave ending in and around he 8500 support zone.  Subject to the price action to get there this is currently looking like a wave 1 down that should trigger a counter trend wave 2.  The turn of the wave 2 would be an excellent place to get Short this market as then a long and strong wave 3 should ensue, that could be worth over 3000 points.  All in the future though.

[dmedin]

Euro/USD rallying like a mofo!  👍

Edited October 18, 2019 by dmedin

[Mercury]

This pair looks to be close to completing the current bearish phase and turning back into a rally.  At present I am seeing this as a counter trend relief rally.  I have a 1-5 form for the bear move with a Flag at half way and PMD at the current turn.  Can't rule out another leg down further into the support zone but in any case I am not seeking to trade the rally but rather the next bearish phase.  What I am using this analysis for at present is to support the case for a EURUSD rally and my expectation for GBPUSD to remain flat in consolidation for the short/medium term.

[Mercury]

The reason GBPUSD may lag EURUSD in terms of a bullish breakout is that the EURGBP third leg of the Triad is signaling a bullish phase for EUR, that is likely to be a temporary retrace, which once over could signal that strong bear move I have been tracking.  Of course GBP could still go up but just more slowly.  From a fundamentals perspective this short term situation is likely to be election driven.

[Level_Trader]

EUR/GBP could be set for a big week. Not expecting much until Thursday but a conservative win could see the pair reach 8316 at least with a break below potentially sending it as low as 80...

Should Labour win, the move up could be just as violent.. with resistance clustered between 8630-8650 with a break above that likely to push towards 8760

Definitely one to watch over the coming days..

[Mercury]

My personal trade of the week (not a day or week trade, that was/is Coffee short but a medium term play) is Long EURGBP.  The markets were full Bullish GBP after the election result but that has reversed since.  I thing GBP will resume its bullish trend but EUR has more pent up potential in the medium term and also benefits from some clearing up of uncertainty.  Currently the Brexit "deal" looks to heavily favour the EU, BoJo should renegotiate/play hard ball now he has a significant majority however political expediency to get it done will likely dominate over a more sensible and balanced deal.

From a technical perspective there has been a sizeable bearish phase, as signaled some time ago on this thread, which has progressed in a 1-5 motive wave pattern.  Markets move in waves and I think this is a wave 1 off the turn back in August so the next phase should be a relief rally (wave 2).  I would expect this to carry at least to the Fib 50% level and once we get the turn I see a large bearish wave 3 phase, which would align to a large Bullish GBPUSD phase to come with EURUSD lagging or reversed.  Note the turn up is on a long term support level with oscillators over sold and emerging back up and PMD on the daily.

 

[Mercury]

Rally is looking good.  Currently experiencing a small consolidation pause.  I would expect a continuation up from here, although some further bearish correction is clearly possible before the rally continues to its next phase.

[Mercury]

EURGBP looks like it may be staging a breakout rally after an A-B phase.  Could be propelled to the 9000 level with GBPUSD reversing in a sell the fact fashion and EUR steadily heading south, but slower.

[Mercury]

EURGBP retrace rally looks to be about to get going again after what looks like an A-B with a wave C to come.  It isn't a bad place to be if you want to avoid the uncertainty around USD.  At present I see this as a relief rally prior to a major long term bearish phase as GBP winds up as a more desirable safety haven during a financial and economic crisis, in particular London.  There is a technical case for the price action since Oct 2016 being a long and drawn out consolidation period prior to a big bullish push but at present I see no real evidence of this and now that the UK has been freed of the Brexit paralysis and the USD is signalling a quick trade agreement I think we may see tailwinds for GBP, but not before some short term skittishness.  There are several credible turning points above the Fib 50% level but price action will hopefully help spot the turn when the time comes.  Short term I am expecting a small wave 2 bearish retrace down before a strong rally but I am already Long off the pin bar bullish turn.  I am expecting both EUR and GBP to drop vs USD but for GBP to drop further and faster so favouring GBP shorts.

On the purely technical side I see the following:

1. The entire move since Oct 2016 conforms to a complex A-B-C (1-2, pink) and the recent low at wave 1 (blue is just below wave 1 (pink), which is indicative of a long term bearish bias for me.
2. Wave 1 (blue) turned at key long support (albeit with a slightly lower low, crucially) and on PMD after a 1-5 wave form down.  The next phase should therefore be an A-B-C counter trend rally (unless the complex consolidation is still in play).
3. After the wave 1 (blue) we have seen a short rally and then drop that ended with a daily chart pin bar at the Fib 62% (bullish).  This could be an A-B or a 1-2 but either way is signalling a bullish phase to come.
4. The 1H chart shows a possible narrowing channel breakout and PMD at the wave B (green) pin bar turn.  

 

[Mercury]

This pair has been in a textbook 1-5 bear phase since the Aug 2019 top and turn (wave 2 pink).  Nothing dramatic but a steady 1000 points; it is nice to have a steady trade that is somewhat immune from the vagaries of USD...  The market looks to have put in a wave 1 (blue) right about where I was looking for it at key support BUT price did penetrate this support a bit to put in a long term lower low (see previous posts weekly chart).  This gives me more confidence in my lead scenario that we are now in an A-B-C retrace rally that, when it tops and turns, will set up a long term bearish run.  This is contrary to received wisdom that GBP will get hammered as a result of Brexit but I have been making hay out of that contrary stance since Aug so all to the good.

So far so good and now we may be seeing the conclusion of the A-B (green) with a pin bar reversal off the Fib 62% (wave A green to wave 1 blue) and a breakout from a 1H channel, with GBP breaking down also (see my GBP thread).  There was strong PMD at the wave 1 (blue) turn and oscillators are coming out of over sold at the wave B (green point). There was strong PMD on the 1H chart at wave B (green) as well and the wave B is in a 1-5 profile.

Several candidates for a turn, which will naturally be dependent on what we see in terms of price action ont he other legs of the triad but for now I fancy the 9000-9100 area.

[Mercury]

This bullish phase on EURGBP looks to be on now but as with GBPUSD I am seeing a counter trend bearish phase first before the next bullish wave.  I think this pair will top out when GBPUSD bottoms out.

[Mercury]

As mentioned in my GBPUSD thread, EURGBP turned bullish again at the Fib 62% and now looks set on a fast move back up.

[Mercury]

As both EURUSD and GBPUSD fall I am tipping GBP to be weaker on the basis of the EURGBP charts, which are signalling a rally phase.  After a decent bearish wave a relief rally is the next most probably phase.  Long term I am bearish on this pair.

 

[Mercury]

Gap closed at the Fib 88%, very deep retrace that could be a Wave B conclusion in A-B-C form.  If this proves true then we should see a period of EURO relative strength vs GBP BUT will this be driven by a strong rally in EURUSD or a stronger bear move in GBPUSD..?  Safer bet may be on EURGBP.

[Mercury]

Potential EURGBP breakout rally may be signalling a period of GBPUSD bearishness after an effective double bottom.  Need to see a break above short term resistance and close above to confirm.  If this proves true then a fast wave 1 of a wave C would be expected.  There is a reasonable channel and PMD at the wave B turn.

[dmedin]

Holy cr@p!

[dmedin]

GBP has broken the up trend established in October, if it retests that line (bounces off it and starts moving back down) then maybe we should short the pound 😱