Sunday, January 9, 2011
CHART OF THE DAY
The Euro Index is clearly in the fifth wave of impulsive weakness from the November high, which also marked the completion of a five-wave uptrend. The first wave of the latest move-down was exactly 4 points in length. Thus, if the current move is a 3rd-wave extension, then the last wave should equate in length with initial wave. This would suggest a re-test of the August/September 2010 lows at 102.78/103.18 region. At this point, positive diverging daily RSI could hint of an interim bottom before starting a corrective phase.
The 2nd and forth-wave were roughly 2 points in length, which would then assume a rebound from the aforementioned region to the 105.00 figure. It is important to remember that these are only technical probabilities and the reality is that euro is in the midst of a potential selling capitulation. Thus, it would require positively diverging short-term studies to confirm a short-term reversal.
In the event, 102.78 is broken to the downside, then the next possible support becomes the 2010 low at 102.00. If the 102.78/103.18 region is not reached, then any bearish reversal below 105.00 would be an attractive opportunity to place a new short position. For now, however, weakness is projected to at least test 103.18.
Stay short the EUR vs. the USD, GBP, JPY, CHF, CAD and AUD until the Euro Index reaches the 102.78/103.18 region. Exit shorts if hourly studies turn upward. In the meantime, look to re-short if 105.00 is not reclaimed.
Link for Euro Index quote = http://www.barchart.com/quotes/stocks/$EXY