Euro and Pound preparing for modest bounces
The Euro and the British Pound followed the bearish alternative paths we presented two weeks ago before putting in retracement bounces. We would like to see additional bounces in both currencies during the upcoming week, but we cannot rule out a quicker resumption of the downward trends. In this post we present near-term bullish and bearish scenarios for both currencies paired with the Dollar.
The Euro's May 31 low might have represented the completion of downward wave 'i'. In that case the recent bounce looks too brief and shallow to make a satisfying wave 'ii', and thus our primary scenario projects another modest bounce in sub-wave [C] of 'ii'. The zones near 1.0819-1.0838 and 1.0888-1.0900 represent the most likely resistance areas to complete the move, although higher is possible.
The alternative scenario drawn in red presents the case that downward wave 'i' might still be ongoing and that the recent bounce represented part or all of an internal fourth wave. That would allow price to wiggle around in the range established since May 31 before trying to complete wave 'i' with a new low. In the alternative scenario, a break of support at 1.0588 would allow for a test of the zone near 1.0534-1.0530, where the anticipated wave 'ii' bounce could begin.
From a trader's perspective, the wave count is less important than recognizing the consolidation range that we think price currently inhabits. 1.0588 represents the lower edge of the range, and the resistance zones up to 1.0900 represent the higher edge. The best trades will probably come from fading against the edges or from looking for continuation opportunities after price breaks beyond one of the edges.
The British Pound presents a situation similar to that of the Euro, even though its early June bounce was relatively stronger. The bounce was too large to be an internal fourth wave as we have depicted in the alternative scenario for the Euro, but it could represent part or all of the wave 'ii' retrace that would be counterpart to downward wave 'i'.
As with the Euro, the Pound is probably working within a consolidation range. Resistance zones near 1.2607-1.2612 and 1.2671 represent our preferred targets for completion of sideways/upward wave 'ii', but we can't rule out a small dip lower to test supports at 1.2364 and 1.2346 in the very near term.
If price is unable to climb beyond the middle set of resistance levels between 1.2451 and 1.2517, then traders should be mindful of the possibility that the larger correction could already be complete. A failure to break beyond those levels could lead to a steeper decline becoming the path of least resistance.
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