EURUSD has reached the supply line of the downward stride and is showing significant climatic action. This is also a supply area that has now become resistance between 1.22 and 1.25. There is RSI divergence indicating supply coming in at the Preliminary Supply (PSY). On the daily time-frame there has been a secondary test on lower volume of the climax high indicating distribution.
Comment:
The current climatic action must be seen in the context of the larger accumulation that precedes it. There was a 2 year accumulation in 2105 and 2106. Following the Wyckoff logic of cause and effect then that extended accumulation should result in an equivalent effect and significant upside is still expected. The current climatic action (on the daily time-frame) has had a secondary test and is entering into Phase B were the case will be established if this is re-accumulation or distribution. If it is re-accumulation we could see it test 1.2 level where resistance becomes support and then go on to break the downward stride. However, if it turns out to be distribution then it could retest the previous accumulation range at 1.15 this year.
Comment:
The case has been established in Phase B with signs of weakness (SOW) and a last point of supply in Phase C that has occurred. Now expecting the last gasp of demand before the markdown back to the previous support.
Comment:
Together with the very high volume we find from the COT report that commercials are extreme short the EUR and long USD. Open Interest on the EUR is high. This supports the view that we have a climax and can expect a strong move down for the EURUSD.
Comment:
Looking at the COT report large speculators in the Euro are at historical extreme long levels (commercials are extreme short) and showing divergence with price. A strong move can be expected.
Comment:
The yield difference between the 10year Bund and 10year US Treasury Notes has shown a significant divergence from the normal good correlation. However, open interest in the US dollar remains low and we have not seen a significant move on speculators closing their long open positions on the EUR. So we are still waiting for the market to start reacting to these imbalances.
