Nearing an EW completion target

4 дек. 2014 г.

A number of factors converge to support a long position in the EUR/USD. In an ideal scenario, we put in a daily bottom around current prices and move up to a wave 4 completion followed by a final thrust to new lows, which is a bottom. If this pattern works out, we have the following confluence:
* wave 5 (blue), of wave 5 (yellow), of wave 5 (green)
* 5th wave diagonal (blue) overlapping structure, with fibonacci ratios matching "three drives to a bottom"

In addition, we have the following (not shown)
* Long-term (10-year) trendline support
* Weekly DiNapoli MACD nearing bullish crossover, first crossover since the bearish crossover on May 9.
* Oversold monthly territory in a detrended price oscillator

Fundamentally, this would be a play on orchestration delays in the ECB's monetary policy. The market has priced in significant dovish policy at this point and the ECB has committed to it, but the fragmented political scene of the euro makes implementation less straightforward compared to, say, the US or Japan.

Only short-term trades would be aiming for a 4th wave target, but the longer-term picture support levels are shown in the chart. We can't create a true final wave end target for the blue wave until wave 4 completes, but a reasonable estimate would come in around the 1.22 level. An inverse wave puts the wave 4 target squarely in wave 2 territory.

A failure to end wave 4 would signal a truncated 3-wave structure similar to the 2009 SP500 bottom's missing wave 5. If the structure breaks down, it will be obvious. Actual entries would be made with Dinapoli trend entries on a lower time frame.