Since May, EUR/USD prices have been confined to a 1.2460 to 1.2980 trading range, which one could roughly categorize as a 1.2500/1.3000 range. The advance from last November's 1.1640 nadir that took prices to the range high in June at 1.2980 looks to have been an ABC correction of the impulsive five-wave downtrend that preceded it from the all-time high of 1.3666 in December 2004 to the 1.1640 low last November. What this augurs is for an eventual return to and break below last November's low as the next major impulsive downtrend pattern unfolds on the long-term charts.
I now view the move from 1.2980 to 1.2460, the July range low, as the first wave of a developing five-wave downtrend structure, the projected objective of which stands at 1.1620 and quite close to last November's 1.1640 nadir. Looked at from a retracement standpoint, the 1.1640 to 1.2980 ABC uptrend has a 38.2% retracement at 1.2667, which was violated by a mere seven pips in July before an oversold bullish divergence on the daily charts prompted a rebound. Daily studies are entering oversold territory again as the key support in the 1.2660-67 area comes back into view, so there could well be a near-term rebound from that region of support before it is removed with authority.
The next key supports are grouped in the 1.2310-30 range, with the 50% Fibo of 1.1640 to 1.2980 at the bottom of that range and key within the context of the ABC structure that is being retraced. The case for a breakout from the six month trading range is strengthened by the ultra low weekly ADX readings that are just this week beginning to rebound. Ditto for the weekly Bollinger band differentials now caroming off of a low not seen before on the theoretical charts since July of 1977. As the saying goes, something has to give.
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