Euro Nears Critical Point

The EUR/USD is now nearing a key region of resistance after reaching fresh 3-year highs earlier today. A key trendline and two key Fibonacci measurements are lining-up in the 1.2617/33 region, just above current price action.

This, however, is not just any trendline, its a trendline that originates from the double top pattern in 2009, when the EUR/USD rejected near 1.60, marking all-time highs for the single currency. The long-term falling trendline also bisects the terminal points in 2011 & 2014, when the EUR/USD also failed near critical psychological big figures at 1.50 & 1.40 respectively. And with the market probing the 1.25 handle, it seems that 1.2617/33 may be the only barrier that guards the possible route to 1.30.

With the Dollar Index  having recently broken down through the key 90 threshold, the greenback does not seem to have declined to key support versus anything, with exception to gold , which is bumping up against last year's highs. Typically, forex markets tend to overshoot targets, and in this case if this 1.2617/33 region can somehow cap price-action on a weekly closing basis, then we could potentially look back and say that this was the moment when the EUR failed to clear 1.25, rejecting at another psychological big figure.

The most likely outcome, however, given the momentum in the currency market and the heavy LONG exposure large (non-commercial) traders to the euro, is a pause or a period of consolidation for the beaten down US dollar . That said, keep an eye out for (EUR/USD) the 1.2617/33 region, in ultimately deciding how much further the USD can decline.

Bitcoin Extends To Fresh Record Highs

Now that the high earlier in the week has been taken-out, after completing a 3-wave (ABC ) correction, it appears Bitcoin is now forming the final (5th-wave) portion of a larger 5-wave structure. The 1st wave equality projection target is a few hundred points higher from current levels, in which price-action has seemingly respected the psychological 6000 mark as temporary resistance. If Bitcoin can maintain support by Monday's peak, it should have enough momentum to complete wave-5 of a (big) 5-wave impulse.

Bitcoin Completes 5-Wave Advance

A clear 5 waves can be traced-out since the beginning of 2015. The 1st wave was roughly 2830 points and lasted a year and a half. The current 5th wave has seemingly completed at 2825 points, which is nearly the same size as wave 1. It's typical in Elliott wave theory that the 1st & 5th wave are either roughly the same size and/or duration, and the 3rd wave is always the largest of all 5 waves. Which is exactly what we have occurring now! In theory, Bitcoin should correct in some sort of 3-part move or A-B-C correction. That said, a quick resumption of strength over the recent peak in the 5850 region could hint of an extension which would alter the (Elliott) wave-count. I'd look to buy dips (if it gets there!) in the 5000 region, maybe a little bit above, maybe a little bit below, depending how quickly it gets there (if it gets there at all!)

Gold Next Seeks Test Of Critical Resistance

Gold futures have enjoyed follow-through strength after the holiday weekend, continuing August's key breakout.

From a long-term perspective, Gold is trading within the upper portion of a year-long range that looks like it could extend towards 1500. If the July 2016 peak (1375) manages to cap, however, it could raise longer-term red flags for the latest 20-month recovery. This is because 1375 coincides with a 38.2% retracement of the overall prior range, and failure to break above it would suggest that recent strength is merely a corrective counter-move within the 6-year decline from 1900.

So, it is imperative that Gold futures take 1375 to the upside to keep momentum alive for a key equality target located just under the 50% retracement and psychological 1500 threshold.

Small double bottom base emerges ahead of key Fibonacci retracement

After suffering the worst day in 6-weeks Gold futures have stabilized ahead of key Fibonacci retracement (61.8% of latest minor range). Also, a small double bottom seems to be forming on intra-day technical charts. More importantly, from a bigger perspective, Gold futures have seemingly held up the month of August after breaking long-term (monthly chart) trendline resistance. This suggests that if a higher base is confirmed (clear break to the upside of 1280) here, then Gold should re-test the critical 1300 threshold.

Critical Juncture For Equity Markets

Yes, it's the middle of the summer, and yes, volatility is extremely low! And, no, I'm not calling for a top here in stocks. But, what I am concerned is what the key averages (Dow Jones Industrial Average, S&P 500 Index and the Nasdaq Composite) are doing from a pure technical perspective.

Looking back at charts this past spring, while the Nasdaq Composite and technology stocks as a whole, were soaring to fresh all-time high after fresh all-time high. Both the Dow Jones Industrial Average and the S&P 500 Index, however, traded within their respective ranges until late May.

It was nearly two months of consolidation until all three (indices) begun to harmoniously hit record high prices. In other words, they (the Dow and S&P 500) lagged while the Nasdaq assumed leadership. Since then, however, it has been the Dow and S&P that have reaching a series of fresh record highs, while the Nasdaq has lagged behind, consolidating gains for roughly a month. That was until last week, that the Nasdaq broke-out  to record highs only. The point is, that leadership has shifted from the tech-heavy Nasdaq to the more-balanced, Dow and S&P 500.

This may be another just throw caution in the wind moment, however, especially since the market universally has gone straight up since the 4th of July. But,there are two developments recently that merit some concern for stocks.

First, is the weak dollar trade, which has persisted all year, but is now finally peculating into strength in the Japanese yen and the price of Gold. Over the past week, both have rallied quite significantly, which is typically a hint of risk aversion, normally a bad sign for stock markets around the world. Therefore, if the price of gold were to ascend quickly towards the important 1300 handle, and the USD/JPY were to break key psychological support at the 110, equity indices would likely sell-off.

The second development, is Crude oil's price reaction late last week. Typically, dollar weakness promotes high commodity prices, but in this case, late last week oil plummeted as the Dollar Index closed the week at fresh 52-week lows . To be fair, Crude oil, is trading firmly within a range, and is seemingly stable to start the week. That said, if Crude oil prices were to drop significantly this week, technical factors could dent sentiment in equity markets.

All in all, I am still maintaining my medium-term bullish outlook on equities and believe corrective pullbacks will continue to be shallow and rotational in nature. That said, it does worry me that leadership amongst stocks may be changing and that bull momentum may be slowing down. Most importantly, if stock market indices fail to make headway at this very juncture, this could signal a false-break scenario, a technical set-up that is often proceeded by a quick, but strong reversal lower.

Weekly Futures & FX Positioning Report - July 16, 2017

Dollar Sentiment Continues To Deteriorate As The British Pound Breaks Key 1.30 Resistance

●  Large speculators (non-commercials) in Japanese yen futures increase bearish bets for 4th straight week, reaching a new 2-year high.      
●  Euro specs reach all-time net long position vs the US dollar.                                         
●  Canadian dollar makes most significant (bullish) move in sentiment once again as net positioning eyes parity.                                          
●  Crude oil remains volatile, but stabilizes on back of continued gross short reduction.           
●  E-mini S&P 500 futures reaches all-time high as Nasdaq 100 futures nears record highs.                ●  US 10-year futures speculators hesitate ahead of Yellen, then slightly reverse bearish shift.

Yen bearishness (by large speculators) reached a new 2-year high according to the latest CFTC IMM report (as of July 11th).  Bearish bets by (non-commercial) speculators thrusted higher for the 4th straight week, bringing the net contracts total to -112K and the percentage of long positions down to the nearest  (a net)  21% . The number of gross short positions (vs the yen) nearly reached a record high.

This played out while the USD/JPY briefly breached key resistance on Tuesday before reversing lower and subsequently finishing the week down over 1 percent. According to the latest retail trader data (provided by Oanda Corp.), the retail population had been consistently increasing bullish bets (in favor of the Yen) as the Japanese currency declined over the last five weeks. That said, it has appeared that the latest reversal (in price-action) may have shifted retail traders, as (retail) positioning began to turn negative towards the Yen by the end of the week.

While last week's (USD/JPY) rejection at key resistance at 114.36 (May 10th high) highlights a potential (daily chart) ascending triangle pattern or worse a (lower) double top, it is more likely that large speculator's have temporarily exhausted their bearish stance and are merely taking a breather before resuming more downside pressure. If the USD/JPY continues south of 112.34 (38.2% retracement of previous up-trend), however, and the retail population continues to sell Yen, then it appears that large speculators may have substantially exhausted their Yen bearishness.

Speculative short reduction (gross & net) in the Euro remains an on-going theme as the net long tally (83K) broke the June high (79k). Bullish sentiment which had primarily been driven via short-covering now seems to be driven by outright buying. While this is typically a bullish development, the gross long position total has just surpassed mid-April's record high, which could possibly signal exhaustion for Euro bulls. That said, with the British pound breaking out vs the US dollar, and most sentiment metrics trending in favor of further for the EUR/USD, a weekly breakout above the mid-1.14 region would quickly expose the key 1.17 are then potentially 1.20 and above.

Speculative sentiment for the British pound was unchanged on a net percentage basis, but continued to make a push towards net (positions) parity. Gross long contracts gave back most of what had been gained the prior week, which may explain the Pound's 0.68% decline (in the 7/3 to 7/11 period). Subsequent price-action in Sterling, highlights a significant breach of resistance at 1.30 (GBP/USD) as retail traders (Oanda Corp) continue to remain rather skeptical. This continues to bode well for dollar bears while the retail population remains reluctant to follow recent strength in the Pound. Next stop for the GBP/USD could be the mid-1.32 region to the upper-1.34 area, which at that point would exhaust retail sentiment and temporarily stall price-action.

Aussie speculators continue to grow net longs, taking the net long percentage to 75%. This time, however, it was driven primarily in a large drop in gross shorts. It was the first week in a month that saw long positions decline, which may partly explain why the AUD/USD dropped by 0.30% (in the 7/3 to 7/11 period). Speculative bulls look to have continued their run, however, as the Aussie spiked 2.55% in subsequent trade for the week. That said, with large speculator's at already elevated bullish sentiment levels and retail trading potentially have capitulated (in regards to Aussie pessimism), the AUD/USD may encounter some struggle at key resistance at .7835 (April 2016 peak).

Canadian dollar futures have continued to trend higher in both price and sentiment, with net (speculative) longs surging in both in net contracts and percentage for the 8th straight week. Speculative sentiment was nearly in parity (in terms of gross longs vs shorts) before the Loonie surged another 2%. Retail traders, however, continue to be extremely pessimistic, with only 29% of outstanding contracts long. Although, there is plenty of room to go for speculative bulls, there are signs that retail traders are getting close in exhausting their pessimism. This suggest that the USD/CAD is expected to reach the 2016 low just below 1.25, some  consolidation in price-action is anticipated.

Gold bottomed in early part of last week, just before the completion of the latest CFTC IMM report. In spite of bullish sentiment among large speculators reaching fresh cycle lows, Gold futures managed to gain an additional 1% into the weekend. This suggest Gold's technicals and sentiment indicators were oversold and were due for a bounce. Although, Gold futures may have broken the initial downtrend (of the latest bout of weakness), the retail population (according to recent Oanda Corp data) is overly bullish (for gold) and is testing levels not seen since late last year. This suggests that Gold is most likely in the process of forming a base and will have to see speculative demand pick-up and retail traders to start selling for Gold to continue rise,  both of which have not been seen yet. Fortunately, for Gold bulls, US dollar deterioration (in both sentiment & price-action) should provide a tailwind of sorts.

Crude oil price-action was decisively volatile once again. Crude futures dipped over 4% in the 7/3 to 7/11 time frame (covered in the latest CFTC IMM report), then rallied over 3% thereafter. It seems that the continued reduction in gross shorts by speculators is partly to blame for Crude's stabilization. While  Crude oil speculators remain vulnerable to a further gross long reduction with the net percentage (of large speculators) at rather lofty levels (70%), if the US dollar continues to decline and speculative short-covering remains robust, Crude oil futures could recover back towards 50.

E-mini S&P 500 futures reached a fresh all-time high this week as large speculator's gross shorts continued to hover near the low-end of the year. While the short-covering theme stalled this week, it was the jump in gross longs that likely fueled the latest run-up into Friday. This is viewed as a healthy indication for equity bulls and should be reflected in the next CFTC IMM report and price-action going forward.

Nasdaq 100 futures walked back from last week's largest gross short position in over 7 years. Despite the dramatic drop in speculative gross longs, price-action in the Nasdaq has managed to recover back towards all-time highs. The nearly 2% move in the latter part of the week hint that gross longs have potentially bottomed and gross shorts have topped-out, both of which should fuel the Nasdaq to all-time highs. From there, however, the technical reaction will be critical in determining future direction for all stocks as the earnings season gets going.

Despite remaining (net) long, speculators in US 10-year futures have correctly played the latest bearish shift in price-action, by re-upping gross short positions and reducing gross longs over the past few weeks as well as the 7/3 to 7/11 (CFTC IMM report) time frame. That said, the positioning adjustments this week offset each other and the net long percentage remained the same at 59% (net long). This hesitation in sentiment ahead of last week's testimony to the government by Fed chair Janet Yellen was justified by her dovish remarks and highlights a potential base in the US 10-year in the 124.80 region. While, the technical and sentiment outlooks remain murky, if tens fail to recover any further than the 126 region,  then the aforementioned key 124.80 level could quickly be re-tested.

US 30-year futures speculators reduced their net long positions by 16K contracts, dropping the net (long) percentage to 58% from 61%. Gross longs continued to ascend to their highest level since the Financial Crisis in 2008, but were offset largely by a large increase in gross shorts. While speculators have largely been caught on the wrong side of the trade, the latest price-action in US 30-year futures have caused the technical outlook to be as murky as the outlook based on sentiment.

The complete 7.16.17 report with charts