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Euro Countertrend Rally Possibly Underway to 1.52

Monday, 18 August 2008 13:14:26 GMT  |  Jamie Saettele, Senior Currency Strategist

The EURUSD closed below 1.47 Friday and the pair has enjoyed a small bounce so far this week.  While there is no confirmation of a Euro bottom, short term wave structure and other technical factors suggest that a low is near.

 

 

The violent decline the last two weeks makes it likely that a significant multi-year top is in place at 1.6039.  On an intraday plot, it is possible to count 5 waves down now from 1.6039, therefore probability is high that a countertrend rally will begin soon (may be underway now).  The Fibo zone would (38.2% of the decline) begin at 1.5184.

 

 

Big picture, we maintain that a 12 year triangle may be complete at 124.13.  The decline from there to 95.72 would be wave 1 down of the 5 wave thrust from the triangle.  Wave 2 (correction) has been underway from 95.72.  Shorter term, the advance from 95.72 should unfold correctively (3 waves) and to this point that is the case.  Wave c of 3 is considered underway from 103.76.  Support is below 108.

 

 

Let’s look out bigger picture to begin the week.  The count presented above is interesting in that it argues that the rally from the 2001 low at 1.3682 is complete in 5 waves.  The break below multi-year trendline support supports this count.  Under this count, we would expect the GBPUSD to find long term support near the 2005 low of 1.70.  A shorter term bearish channel appears to be forming now.

 

 

The USDCHF continues to put to test a short term resistance line as well as the 1.10 psychological figure.  RSI continues to exhibit divergence with price; which warns of at least a short term turn.

 

 

Bigger picture, we are looking for a top.  The recent advance was a break from a triangle.  Triangles occur as the middle wave of 3 wave corrections.  So, if we are correct in our labeling above, the USDCAD should form a top soon…1.08 is the 61.8% of the 1.1875-.9055 decline and a potential resistance area.

 

 

The 4th wave that was expected appears to be complete at .8795.  Expect a new low, below .8591, before a more significant low forms.  The psychological .85 level is potential support.  The rally to current levels presents a low risk continuation opportunity against .88.

 

 

The NZDUSD countertrend advance is much more mature than the other USD pairs (some of which may have not even started countertrend advances).  In fact, the pair is already near the Fibo zone, which begins at .7182.  Look for resistance near there.

Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com

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