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Dollar Gains Ground in What be Next Bull Leg

Friday, 05 December 2008 16:42:55 GMT  |  Jamie Saettele, Senior Currency Strategist

The euro / triangle may be complete at 1.2850.  If so, then a drop below 1.2330 should take place in the next few weeks. 

View the EURUSD pre-NFP technical report for a more in depth look at the triangle pattern that has unfolded for over the past month.  To review, triangles consist of 5 waves (labeled A-B-C-D-E).  E waves tend to be sharp, just as the rally to 1.2853 was.  There is a chance that price exceeds 1.2853, but that would not alter the bearish count.  The downside is favored and the EURUSD is expected to break below 1.2330.

Continue to favor the downside in the USDJPY.  As I’ve mentioned the past few days, “another reason to stay bearish is that the USDJPY is not ‘acting’ as it has at recent bottoms.  Turns usually occur with a price spike (notice indicator on chart).  There has been no spike recently in the USDJPY, which tells me that a bottom is not likely to form soon.”  The 1 period ATR on the chart above illustrates this dynamic.  Still, the pair is approaching the October low near 90, which may provide support.  Bears that are late to the game may look to sell rallies into trendline resistance in the week(s) ahead if given the chance.       

“Looking in at the hourly chart, the GBPUSD rally from 1.4554 is clearly corrective.  While this could be the beginning of a flat or triangle, it may also be a completed correction at 1.5539 that will lead to new lows.  Further, the decline from 1.5539 counts well as an impulse.”  I had been looking for a rally back to the 1.50/52 zone in order to get bearish, but 1.4819 is all the bulls could muster.  Staying below there keeps bears firmly in control. 

Higher highs and higher lows since the March low favors bulls longer term.  Near term, the decline from the top side of the channel is impulsive and the rally from 1.1828 is corrective.  I had been “expecting weakness below 1.1828 in the next several weeks” but the EURUSD and GBPUSD bearish counts bring that bias into question.  If the bull has resumed, then support should be strong in the 1.2075-1.2156 zone.    

The rally above 1.2993 negates the bearish bias that I had held.  A break above 1.3025 and towards the 2004 high at 1.40 looks likely now.  1.28 is short term support.

The AUDUSD is throwing me off.  I am always looking for a common theme such as risk aversion or dollar strength / weakness.  The EURUSD (and GBPUSD to a lesser extent) looks bearish to me but the AUDUSD looks bullish.  It is possible that the EURUSD breaks lower while the AUDUSD ranges (EURAUD bearish opportunity).  Pending a drop below .60, I am cautiously bullish.  To review why; “there remains potential for a large recovery back to the mid .70s given the 5 wave drop from the top (near 1.00) (waves a and b of an a-b-c correction would be close to complete).  Bulls may attempt to ‘pick’ this bottom given that the AUDUSD has held above the October low.”

There are warnings of a bottom such as divergence with momentum oscillators on the daily chart.  However, until the NZDUSD rallies through trendline resistance (drawn off of the September and November highs), the chance of a breakdown remains.  

 

 

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week.  He is also the author of Sentiment in the Forex Market.

 

Contact at jsaettele@dailyfx.com

 

 

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