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Currencies and Bonds Indicate a Bounce May Be Near


While we may still be in a "sell the rips" mode on an intermediate-term basis, the short-term may bring us a tradable rally in risk assets once certain support levels are reached.

MINYANVILLE ORIGINAL For weeks now, the key risk gauges in the currency and fixed income markets have been telling this analyst that preserving capital was the right move. Well, while we may still be in a "sell the rips" mode on an intermediate-term basis, the short-term may bring us a tradable rally (for those happy with a few percent on a trade) in risk assets once certain support levels are reached.

EURUSD nearing short-term support.

The euro / US dollar (EURUSD) currency cross is now nearing its potential wave (((iii))) support levels at 1.26289 and 1.25419 (the 138.2% and 161.8% Fibonacci price projection lines). One of those levels will likely hold up as support for the EURUSD in the short-term and will likely produce a wave (((iv))) upside correction / consolidation.

The magnitude of the bounce is the big unknown at this point. I would tend to believe that any rally we see in the short-term will be very modest in magnitude – perhaps up to 1.27490 or 1.28223 based on some preliminary retracement estimates.

The wave counts in the equity markets seem to be pretty much in sync with this wave count on the EURUSD – so I will be looking for a modest rally in stocks as well.

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EURGBP setting up for a nice long-side trade entry.

I was just scanning through some of the other euro-based currency crosses and came across what appears to be a nice long-side trade setup developing in the euro / British pound cross (EURGBP). The chart below shows the EURGBP on a daily basis going back to May of this year. Notice that the cross looks like it put in five waves higher from July to late October. Then we seem to be in the midst of an "abc" correction to the downside. The downside target for this correction comes in at the 100% Fibonacci price projection line at 0.79421 (from 0.79926 when this report was written). Once we test that level of support, I believe we will see the EURGBP commence an upside move that will roughly mirror that of the July to October move (roughly 4,000 pips). I'll share more on this upside in the next section.

I must opine here that things must be pretty bad indeed if the British pound is to show this type of relative weakness versus the euro (if the 4,000 pip move occurs). Everyone mentions Europe as the center of the world's problems, but don't discount what may be brewing elsewhere.

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No positions in stocks mentioned.

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