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EURUSD is the most complicated chart I've ever seen! But the fundamentals are clear


Mercury

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Does anyone else think the EURUSD situation is a mind (you know what!)?  Perhaps that is one reason no one has been posting on this cross...

 

The Fundamentals argument

In terms of fundamental, as I have said before (and even before Brexit day), my feeling is that Brexit is worse for the Euro than GBP.  I believe Brexit is the beginning of the end of the EU project, at least in its current form (hopefully it comes back as a revitalised EEC), and certainly the death of the notion of a United States of Europe.  Greece hasn't been solved, Spanish youth unemployment is an eye-popping 45% and soon they won't be able to come to the UK for work.  French ultra socialist president's policies has driven the French to the UK but that will end now (or be harder at least).  Germany are not happy with Merkel letting 1 million refugees in and bailing out the rest of the EU.  Italian banks are on the verge of collapse.  It goes on and on.  French and Germany elections coming up will be pivotal and Spanish elections have thrown up an impasse.  How soon before emerging Italian protest parties start calling for an election and the Greeks start calling their anti austerity government on promises made?  And that is just the politics, clearly the economy has been in the dumps for ages and Draghi's policies are getting more and more desperate (it smells like Japan and the UK are well off out of it!)

 

The Technicals

So down is the order of the day from a Fundamentals point of view and also from the technicals long term picture in my view.  If you look at my Monthly chart below a clear picture emerges for me.  A trend down since Apr 2008 that has steepened since May 2014 and it looks like it could blast through parity and head on down to all time lows.  That is a potential halving in value vs USD from where we are today and a drop of 2/3 from the top.  That is Armageddon territory, but maybe that is what we will get across the entire financial system so could be exactly right.

 

Now for the complicated part: looking at the Daily chart the market made a Wave 3-4 retrace between May and Aug 2015 and then price has been in a sideways move with direction unresolved.  (If the Wave 4 is a complex retrace then a higher high than Aug 2015 is possible, although it is hard to see that at present unless Draghi or one of the other CB numpties does something dramatic.)  The whole move is currently encompassed in the Monthly/Weekly chart down-sloping tramline pair (purple) and I have a set of decent retrace tramlines (green) with very good touches plus a tramline break and double kiss back on the middle tram and recently a similar smaller one on the lower tramline.  The lower tramline also cuts through the top of the price gap on Brexit day and a possible incomplete A-B-C pattern sets up a retrace top near the 62% Fib off the Brexit top and bottom.

 

However, when you look at the 4 hourly and hourly things become tricky because the A-B-C is no longer clear and in fact the retrace could already have happened on Brexit day (to the Fib 50%).  In addition on the Hourly it looks like a Triangle consolidation formation is in play that should break downwards now that we have had a fifth touch (pink labels).  Very confusing!

 

Conclusion

Th big picture is down, with a possible higher high retrace to post a new Wave 4 before a collapse but unlikely unless there is major CB interventions.  The short term picture is conflicting with either a consolidation Triangle showing a drop from here or an incomplete A-B-C showing a rally to Fib 62% and then a drop.  Proceed with caution and keep stops close and watch out for continuing whipsaw price action.  If price breaks the wave 1 low (black on hourly) then this is clearly a short opportunity but watch out for a retrace to support/resistance taking out close stops.  If price rallies from the indicated support level forming a wave B rather than breaking lower then a short term long is possible up to the 62% Fib where a turn down is another long term Short opportunity.

 

This one really requires patience and the strictest trading risk management discipline.  However if we can find the right entry points there could be 1000s of points on offer long term.  Got to be worth tracking right?

 

EURUSD 160715 Monthly.png

 

 

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  • 3 weeks later...

So far so good with my road map projection for EURUSD and in keeping with my parallel projection of a retrace on DX.  The market gave us a bounce off that support area at what I believe to be a Wave B of an A-B-C retrace and is now approaching the upper resistance zone, which could offer a decent change of a Wave C termination to the retrace prior to a strong move down.  The only slight fly in the ointment is that there are other possible termination points just above the resistance zone being a 62% Fib and daily tramline resistance (Daily chart).  With Neg Mom Div building a confirmed turn around the resistance zone has to be a decent bet with the alternative higher termination point a second option if the first fails.

 

Having ridden the wave C up I have now cashed and am seeking a Short on this market once a turn presents itself.

 



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