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Dollar Outlook (Short Term) Mixed to Begin 2009

Monday, 05 January 2009 13:44:58 GMT  |  Jamie Saettele, Senior Currency Strategist

-euro / dollar potential support at 1.35 and 1.33
-Britsh Pound tests multi-year lows
-USDCAD bullish above 1.1459
-NZDUSD expected to exceed .6090 soon

First, let’s review what has occurred over the past several months.  The decline from the July 2008 high (1.6040) can be counted as a 5 wave drop (wave 5 is truncated).  5 waves down at this degree of trend indicate that the long term trend has changed and that a multi-year bear is underway.  The surge through 1.47 fits as a larger second wave (second waves tend to be sharp and retrace a significant amount of first waves).  This places us in wave 3 down from 1.4723 (complex corrections are always a possibility…in this case that would mean a rally above 1.4723 before the top is in).  Short term potential resistance is in the 1.3650-1.3715 zone.  Potential support is at 1.3490 and 1.33.  Staying below 1.4368 keeps the short term bear trend intact.    

Staying below 100.60 keeps the long term bear trend intact.  There is potential resistance in the 95.20/70 zone; this is the 61.8% of the decline from 100.60 and the March 2008 low.  The December 8 high at 93.93 may also serve as resistance. 

The British Pound is testing multi-year lows.  The count above suggests that the GBPUSD will soon enter a 4th wave that should consume at least a few months.  Divergence with RSI on the daily chart also warns of a pending rally.

To review the bigger picture…a 5 wave advance from .9634 is viewed as the first bull leg in a multi-year uptrend.  The sharp drop from 1.23 is the bulk of the correction (wave A) in terms of price but not time.  The rally from .9634 took 9 months and the corrective decline has entered the beginning of its 3rd month.  The USDCHF may enter into a sloppy range in this B wave before testing potential resistance from Fibonacci near 1.13 and 1.15.

It is still possible that the USDCAD drops below 1.1459 in order to complete a larger 4th wave.  It is also possible that a smaller second wave is complete or nearly so at 1.1812.  Staying above 1.1459 keeps a very bullish count on track in which the USDCAD accelerates higher in wave iii of 5. 

The AUDUSD has satisfied minimum bullish expectations having exceeded .7022.  The 3 wave rally from .60 may be just the first of a string of 3 wave moves that will form wave (2) within the long term decline that began at .9856.  A choppy range may form as an X wave drifts lower from here.  However, staying above .6753 keeps alive the possibility that the AUDUSD rally accelerates towards Fibonacci resistance, which begins at .7256.

Expectations are for a rally through .6090 while the NZDUSD remains above .5656.  Fibonacci at .6183 combined with congestion in that area is likely resistance.  

 

 

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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