4th Wave Consolidations In Progress Setting Up Possible Major Risk Reversals

The dollar continues to trade lower following a recent batch of soft US economic data including last week's weak GDP, factory orders at -1.2% versus a -0.5% expectations, and pending home sales 1.6% lower following a 4% forecast. Market chatter says either another edition of quantitative easing from the Fed is around the corner, or only slightly better, the Fed will not scale back the size of its massive balance sheet. Bond yields are falling as pending demand for US bonds and mortgage-backed securities paid for with US tax dollars brokered by the US government. As a result the US dollar is lower, which says the currency market is trading yields. That's interesting because the market hasn't been trading yields in FX (aside from Norway and Australia) for a few years now, so I'm not sure it's starting now. The inflation hawks kept beating their drums of coming hyper inflation over the past few years and with the stock market pressing summer highs, the Fed is still nowhere near their 2% inflation target.



Please, please, please don't forget we are smack-dab in the slowest summer trading month. So when the missing volume does return in 6-8 weeks, the markets will be forced to face these harsh realities and the dollar will likely resume its safe haven status as risk aversion returns.



Despite all that, which has little to do with our day-to-day trading, I warned on Twitter to not chase equities lower into the 1117 projected support in wave iv. So far that level has held support and we seem to be settling into a wave 4 consolidation pattern, which you know by now will either be a triangle, flat, or complex correction. Should we press the wave iii highs of 1127, I will be on full scale alert for a reversal in equities.

Similarly, EURUSD is also setting into a wave .iv consolidation pattern of its own. Any push above 1.3258 will put us in high alert for a reversal, ideally while staying below 1.3300. In a separate but related market, the US Dollar index is flirting with the 200 day SMA at 80.72, currently trading at 80.63 . Any snap back above this level would be a nice confirming indicator that the top is in fact in for EURUSD