ES Fighting EUR Upswing (by Springheel Jack)

By -

There was a simply amazing move up in EURUSD yesterday and I think that
it is now highly likely that it will make my target in the 1.28 area in
the next two or three weeks. On the 60min chart EURUSD is moving up
within a rising wedge:

100702_EURUSD_60min_Rising_Wedge

The target in the 1.28 area is to hit the upper trendline of the
broadening descending wedge on the daily chart which has defined the
EURUSD decline over the last seven months:

100702 EURUSD_Daily_BD_Wedge

In my view the main reason that ES has been struggling to make headway
on the downside in the last few weeks is that EURUSD has been in an
upswing phase, and USD therefore in a retracement phase, and that
equities move downwards fastest when USD is in a wave up.

In December, when the SPX was still in a strong uptrend, it would trade
sideways to up when USD was in a wave up, and move up strongly when the
USD was trending down. What we've been seeing the last few weeks has
been the reverse of that, with the SPX in a strong downtrend, and moving
downwards strongly when USD has been in a wave up, and trading sideways
to down when USD has been retracing. We've seen some impressive moves
since the last interim bottom on EURUSD in the 118.75 area, but have
dropped, at the end of the day, only 20 points on SPX as I write. By the
time EURUSD hits the upper wedge trendline SPX will probably be 20 to
40 points above where we were when EURUSD bottomed.

In terms of the current move down on ES, we are in a declining channel
on the daily chart, though there have been some major intraday
pinocchios through the lower trerndline of the channel, and I posted
yesterday morning that I didn't think we would see the next interim low
until the lower trendline of that channel was hit. We hit it during the
day yesterday so from that perspective the interim low may already be
in:

100702_ES_Daily_Declining_Channel

I was expecting a hit at the 990 ES level to be the next interim low
today or next Tuesday, but as the bottom of the main declining channel
has already been hit that may not happen. In the shorter term the ES is
also in a smaller declining channel, though it is possible that it is a
falling wedge that we are already breaking up from. If it is a channel
then ES has been crawling down the upper trendline overnight, and an
hourly close at 1025 ES or higher would be a break up from that channel.
IF ES trades that high then the interim low is probably in and the
upswing target will be the upper trendline of the main ES declining
channel in the 1070 – 1090 area.

Here's the shorter term declining channel on the ES 60min chart:

100702_ES_60min_Declining_Channel

So what I'm seeing is essentially this:

  • EURUSD rallying towards 1.28.
  • ES has made an interim low yesterday or will make a slightly lower
    low in the next two or three trading days. 
  • After the ES interim low is in then we should rally back towards the
    1070 – 1090 area.
  • After EURUSD hits 1.28 and ES hits the top of the main declining
    channel, then USD should start another strong wave up and ES should
    start another strong wave down. Both moves will be fast and strong as
    they will not be fighting each other. My EURUSD target for the next wave
    down is under 1.10 and my SPX target is 870.

There is one major caveat of course as EURUSD could hit the top
trendline of the broadening descending wedge at 1.28 and just go through
it. That seems unlikely to me at the moment as both the ES and EURUSD
downtrends look unfinished, but if that did happen then my bear scenario
for the summer might well then not happen. We'll find out when we get
there.

I'm out for the whole trading day today. Have a great holiday weekend
everyone.

Share this post: