EUR/USD - higher medium-term

EUR/USD is correcting lower, and may fall to about 1.2680. This is likely to coincide with weaker stock markets and a rally in US market volatility (VIX).

Generally, EUR/USD analysis similar to that of USD/CHF, in a previous post. Even if EUR/USD falls to new lows, which I think is highly unlikely - it is still worth accumulating.

Looking for a decline

If it is to happen, the decline should happen soon. For an immediately bearish scenario, the market should not advance beyond 2498 on DJ Euro STOXX 50 Dec'08 future (~3% from Thursday 27 Nov close). Targets are around 7.5% lower from here.

VIX falls impulsively. Should correct up.

The VIX fell in an impulsive fashion, and should now correct higher, as high as 71.50.

This will go well with a 10% down move in SP500 and a move higher in the $.

A 20% rally on weak volume

The broader market has rallied about 20% from the Friday intra-day lows. Some stocks, particularly large-cap basic materials (Alcoa; US Steel) rallied around 40% (!).

The rallies have taken shapes of impulsive 5 wave moves, suggesting that, after a correction, this move is likely to continue higher.

The declining volume of this rally also suggests an imminent correction.

Copper is setting up for a good rally, with first targets around 217 - around 27% from current levels.

Finally, the USD fell in a great, clear impulsive 5 waves from the high. In these markets, turning points are particularly tricky to pick, and with the current 50% retracement achieved, it might be a good idea to scale into USD shorts, but be prepared to add all the way to 1.22. Targets, on USD/CHF extend as low as 1.10 - 1.06