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Euro and Pound Ranges Trump all Other Considerations

Thursday, 06 November 2008 13:24:47 GMT  |  Jamie Saettele, Senior Currency Strategist

Volatile ranges have taken hold in the EURUSD and GBPUSD and will probably last into next week (perhaps a bit longer) before terminal thrusts into fresh lows.

The EURUSD remains in a range, which will probably tighten for the rest of the week.  A break from the range (triangle) is expected next week.  To repeat yesterday’s analysis, which remains valid; “the nature of price action since last week’s low strongly suggests that a triangle is unfolding as a 4th wave within a 5 wave decline from 1.6040. Very short term, slightly lower prices in wave d of the triangle would be followed by an e wave that completes the triangle.  If the triangle interpretation is correct then price will remain below 1.3302 and drop to a new low (below 1.2327), perhaps as early as early next week.  I will look to identify completion of the triangle going forward in order to position for the drop below 1.2327.  Until then, the EURUSD is a range trading candidate.”  The mentioned wave d could be complete although additional weakness towards 1.2600 is possible short term before the expected wave e bounce. 

The larger USDJPY trend is down so strength should be sold.  Evidence that favors a new low is the momentum extreme (RSI) at 90.86.  As I’ve mentioned many times before, price extremes (highs and lows) rarely correlate with momentum extremes.  Instead, price extremes occur with momentum divergence.  Support begins at 96.        

The GBPUSD is supported by a long term trendline that dates to 1985 (see purple line at bottom of chart).  I expect a larger bounce off of this line, regardless of the larger trend.  I have presented a potential count from the 2007 top.  Under the above count, a 4th wave is underway now that would likely take the form of a triangle or flat (the triangle labels are on the chart…a-b-c-d-e).  The result would be a volatile range over the next several weeks before a break to a new low.

The USDCHF is testing a resistance line from late 2005 as well as a shorter term upward sloping resistance line.  These lines combined with overbought and divergent RSI on the weekly and daily should lead to a drop that lasts at least a number of weeks.

Price has come into a support zone defined by former support at 1.13 and 1.1740.  1.13 is the 4th wave of one less degree as well as the 50% retracement of the rally from .9817 (low of wave 2).  This level should provide strong support.

The rally from .6005 is probably wave a of an a-b-c correction that will consume at least the next month.  Wave b or may be complete at .6544 but the risk is that wave b completes as an expanded flat (whereas price would come under .6544).  Adoption of a bullish bias is warranted on a rally above .7022 or a drop below .6544.  Until then, the AUDUSD is in no-man’s land.

Kiwi is in a similar position (when compared to the AUDUSD).  The rally to .6037 is either wave a or i within a larger rally sequence.  Wave b or ii may be complete at .5742 but there is risk that the pair drops below .5742 before a solid base is in place that will lead to a larger rally. 

 

 

 

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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