Guest Commentary: EUR/USD - Larger the Gap, Bigger the Profit
* The Gap between Sentiment and Momentum continues to widen as the market becomes more and more bullish but the rally continues to slow.
* This 'gap 'and the reversal from our 1.3400 target is encouraging for our view of a major 1996 style top.
* A period now of 1.3250-1.34 consolidation would be perfect as it would increase the 'gap' even more and allow us to sell again for a much larger decline.
So far so good for the bearish scenario as Euro-Dollar has rolled away from 1.3400-30 resistance.
Since 1.3400-30 represented the both the projected and maximum target for a rising wedge from 1.2660 and therefore a correction from the 1.2045 low, there is a window for a collapse following the Pandora's box analogy with 1996.
The current break back below the previous 1.3305 high is therefore encouraging and a significant blow for bulls…but doesn’t necessarily mean immediate downside acceleration.
Indeed as the initial s/t decline is limited to the area of the previous 1.3250 corrective low also 38.2% retracement from 1.30, then the Euro can set up a consolidation top similar to the previous year end top...and increase the loss of upward momentum and the growing gap between price and bullish sentiment.
We are short and reducing slightly in the short term looking to sell 1.34 again for a break down through the pivotal 1.3140-70 to and beyond the previous 1.30 low.
A break above 1.3430 however says it cannot be a wedge threatening to extend beyond the 1.3485 50% in a 1992 style blowout to 1.38.
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