EURUSD: Bullish Elliott & COT, Bearish Fundamentals
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Elliott Wave Count
EURUSD appears to have finished wave E of the triangle down and has begun wave 1 up. Inside wave 1, we appear to be in wave 5 of a leading diagonal. Leading diagonals usually retrace most of their advance in wave 2, so after subminuette wave 5 completes, we should see a large retracement between 50-79%. This retracement will be the perfect opportunity to go long or add to your existing long position.
For this count to remain valid, prices should not decline below the end of wave E at 1.0666.
Commitments of Trader (COT)
Commercials (industry insiders/smart money) have one of the largest "long" positions that they've had in the past year, with a net position of -11,719 contracts. While that may sound like, and technically is, a short position, commercials have been mostly hedged on the short side at far greater contract numbers for the past year. This is one of their smallest short positions over the last 52 weeks. So this short really acts as a strong long position when considering their current sentiment.
Conversely, non-commercials (industry outsiders/professional speculators) are at one of their shortest positions over the last 52 weeks coming in at -7,083 contracts.
Both the insiders and outsiders are net short, but the insiders have one of their smallest short positions over the past year, while the outsiders have one of their largest short positions over the last year. I prefer to align myself with the insiders, and their actions of late seem to show a change in market sentiment.
Fundamentals
While the technicals and sentiment of the market are bullish, we must exercise caution with the fundamentals. Inflation has decreased in both the U.S. and Europe, and the economy appears to be slowing down. Because no one wants a slow economy and inflation seems to finally be under control, the market is estimating a 61% chance of a rate cut during the September FOMC meeting (based on the CME Fed watch tool), and it seems even more probable that the ECB will lower rates than the Fed.
If the ECB lowers rates and the Fed doesn't, this would be bearish for the euro. While this is not an immediate concern for short-term traders, it is a market narrative that we should keep in mind.
EURUSD appears to have finished wave E of the triangle down and has begun wave 1 up. Inside wave 1, we appear to be in wave 5 of a leading diagonal. Leading diagonals usually retrace most of their advance in wave 2, so after subminuette wave 5 completes, we should see a large retracement between 50-79%. This retracement will be the perfect opportunity to go long or add to your existing long position.
For this count to remain valid, prices should not decline below the end of wave E at 1.0666.
Commitments of Trader (COT)
Commercials (industry insiders/smart money) have one of the largest "long" positions that they've had in the past year, with a net position of -11,719 contracts. While that may sound like, and technically is, a short position, commercials have been mostly hedged on the short side at far greater contract numbers for the past year. This is one of their smallest short positions over the last 52 weeks. So this short really acts as a strong long position when considering their current sentiment.
Conversely, non-commercials (industry outsiders/professional speculators) are at one of their shortest positions over the last 52 weeks coming in at -7,083 contracts.
Both the insiders and outsiders are net short, but the insiders have one of their smallest short positions over the past year, while the outsiders have one of their largest short positions over the last year. I prefer to align myself with the insiders, and their actions of late seem to show a change in market sentiment.
Fundamentals
While the technicals and sentiment of the market are bullish, we must exercise caution with the fundamentals. Inflation has decreased in both the U.S. and Europe, and the economy appears to be slowing down. Because no one wants a slow economy and inflation seems to finally be under control, the market is estimating a 61% chance of a rate cut during the September FOMC meeting (based on the CME Fed watch tool), and it seems even more probable that the ECB will lower rates than the Fed.
If the ECB lowers rates and the Fed doesn't, this would be bearish for the euro. While this is not an immediate concern for short-term traders, it is a market narrative that we should keep in mind.
Note
No updates on this analysis. Everything mentioned above still holds. My only comment is that we are approaching the upper trend line of the triangle and wave five has already advanced more than far enough, so we should be anticipating the pullback.
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