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Tuesday 15 November 2011

Triangles and the Euro

I have an analyst friend who's kind enough to give me his view on EURUSD every so often. He's an EW chartist mainly and though I know a lot of people have little time for EW, it is a tool like any other. In the hands of the inexperienced it is treacherous and ambiguous, and in the hands of a master it can be very impressive indeed. This friend of mine is in the latter category. He called the late 2009 high on EURUSD, and when I was in correspondence with him a year later he called the early 2011 low in the 1.29 area as well, adding at the time that he was expecting the following move up to top out in the 1.46-1.47 area. He was right on both counts again and when he talks about EURUSD I always listen very carefully to what he has to say.

His current comments are extremely interesting. I had sent him my possible H&S on EURUSD with the target in the 1.275 to 1.28 area and his reply was as follows:

'Happy to provide my view on EUR/USD. It is pretty clear that a first ABC down move completed beginning of October around 1.32. The high at the end of April just above 1.49 showed a nice expanding ending diagonal. So this high should hold for the next 2 - 3 years. EUR/USD currently is in an X wave that is likely to last several months. X waves are difficult to predict, but frequently also form an abc structure (they don't have to). If that is indeed true, then we are in the b wave of the X wave. This b wave can be a triangle or any other complex consolidation. It may undercut slightly the low of the C wave around 1.32. I think the maximum may be 1.31. !.27 is too low and is highly unlikely to be seen in the next few months. 

Once the X wave finishes, candidate time periods are either January or April 2012, the final ABC move down to around 1.02 - 1.03 will take place and complete sometimes in 2013. The charts clearly suggest that the EUR will survive, otherwise this first down move would have been much stronger.'

This view would broadly fit with a short term low soon on EURUSD and equities, followed by a Santa rally, and then a very significant high, probably in January 2012 but perhaps later, followed by some very major downside on EURUSD and equities. This is the scenario that I was leaning towards in any case, so I'm going to be working on the assumption that is what we are going to see until demonstrated otherwise.

On the EURUSD chart I think his view would look like this
On ES the triangle I posted yesterday is still in play. With an uptrend going into the pattern this would generally be a continuation pattern of course, and triangle support is in the 1228 area today:
Likewise with TF, with triangle support in the 711 area today:
No firm target on NQ, other than to say that there is very firm support in the 2280 area, though I am not expecting to see that level reached today:
On related markets copper has been failing repeatedly at the declining resistance trendline from the late July high. A break above there would look very bullish and would open up a move to test the 385 and perhaps the 420 resistance levels. A break to a new low with any confidence would look very bearish for both copper and equities:
30yr Treasury futures (ZB) are nearing the top of the current consolidation rectangle, and a break with confidence above the last highs in the 143'06 area would look very bullish for bonds, and correspondingly bearish for equities. I'll be watching that level closely. Slightly below that level is the possible upper trendline of a declining channel. That's in the 142'28 area and a reversal there would set up this possible channel and suggest a big move down towards channel support on that:
Oil has had an amazing run, and has reversed near the 100 level so far. I'm watching the current rising channel for signs of breakdown and we'll see how that goes. Oil is starting to look tired so we could well see a breakdown soon:
Gold is looking tired and has failed again to break up through resistance in the 1800 area. A break above 1800 with confidence would look bullish, and a break below 1750 support with confidence would open up a test of rising support in the 1675 area:
I'm expecting to see a short term low soon within the ES and TF triangles followed by a break upwards. There is some downside risk of course and I'll be watching ZB and the still in play possible IHS on Vix in case we see a break in the other direction. Either way pressure is building and the next break in either direction should be impressive.

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