Last week's robust short-term momentum gave way to consolidation, highlighting the S&P 500's inability to overcome the key June peak. As hourly studies began to roll-over it became evident that bearish MACD divergence had once again reared it's ugly head. The recent bout of risk aversion has highlighted a near-term trend shift, given the loss of important (14-day) moving average support. As a result, a 5-wave leading diagonal has been completed which suggests a deep retracement before resuming impulsive strength back towards the 2010 high. The July 20th swing low at 1056 is the most likely candidate of support since it correlates with a key Fibonacci retracement level. Oversold dips that exhibit bullish short-term divergence below this key pivot should be accumulated. Price-action near the 50% and 78.6% retracements at 1070 and 1036 should be monitored as well.
STRATEGY: BUY at 1056 risking 1025, targeting 1217
The EUR/USD has completed a 5-wave rally off the June low, highlighting bearish MACD divergence. The subsequent loss of 14-day MA and RSI trendline support, indicates an exhaustion of the medium-term recovery. The formation of a possible weekly bearish engulfment also suggests short-term weakness towards 1.2725, also the previous 4th wave base. Any oversold dips below this important base and the key 10-week MA should be accumulated.
STRATEGY: BUY at 1.2650 risking 1.2595, targeting 1.3485
