Euro in Final Stage of Blow-off Top against the Dollar

The EURUSD continues its ascent.  There is evidence that a reversal will occur soon, including the daily wave count and daily RSI near 80.  However, a spike above 1.56 (a Fibonacci extension is above 1.56) is very possible before dollar bulls see relief.  Still, the next major move is probably to 1.43/44.

Although the specific count eludes us, it is worth noting that the rally from the 2005 low at 1.1640 is now in 15 waves (derivative of a correction).  Impulse moves occur as 5 waves but when extended, an impulse will can 9, 13, or 17 waves.  The latest rally (from 1.4438) is a terminal thrust from a triangle.  As the name implies, breaks from triangles lead to reversals (terminal).  Also, RSI is close to 80.  RSI at 80 usually leads to at least a short term top.  The next big move is probably back to the origin of the triangle; which is just above 1.4300.  That would be the 16th wave in the bullish cycle from 1.1640.  Wave 17 would then lead to a new high.      

While the extended RSI favors at least a short term top, COT data (at least the way that we interpret it) does not favor the idea that a major top is due…yet.  Either the 13 week or 52 week COT indexes need to be at 100 in order to indicate a bullish extreme and high probability of a reversal.  This could happen in the next few weeks, so make sure to check the COT report, which is released every Monday morning.  Here is the latest COT report.

This is a chart similar to the one that we showed in today’s Daily Technicals.  Wave 5 within the 5 wave rally from 1.4438  would equal wave 1 at 1.5391, not far from today’s high.  While waves 1 and 5 tending towards equality is a common relationship, another common relationship is wave 5 traveling 61.8% the price distance of waves 1 through 3.  This would place an end to wave 5 above 1.5600 (1.5635 to be exact).  A resistance line drawn off of the tops of waves 1 and 3 intersects this level tomorrow.  This possibility commands respect given current COT positioning and the tendency for currency reversals to occur following blow-off moves.