daily technicals

-Euro support in 1.30-1.33 range
-British Pound inverse head and shoulders pattern?
-USDCAD bullish potential above 1.1459

Yesterday I wrote that, “the EURUSD has rallied over 15% for the month.  The record rally in % terms for one month is about 11%, and that was in February 1973!  The month is not over and the pair could come off substantially in these market conditions.”  After kissing the 200 day SMA, the pair has fallen over 700 pips from yesterday’s high.  I want to lay out the scenario that I see as highly likely for the next several weeks (I will be on vacation until January 5th).  Regardless of the count from 1.60 (either a 5 wave drop with a truncated 5th or an a-b-c decline that is probably wave A of a flat), a EURUSD range likely takes hold over the next several weeks (triangle is a possibility).  Former resistance in the 1.30-1.33 area is probable support for the bottom of the expected range.

One possibility is that the USDJPY decline from 124.20 is unfolding as an ending diagonal.  The subdivisions of the drop from 124.30 to 95.71 certainly count better as a complex 3 and the drop from 110.69 is a 3 right now.  The decline from 110.69 would be equal to the previous drop at 85.30.  Expectations are for the decline to extend below there prior to finding and significant support.  A word of warning though; daily RSI is turning up from below 30 and weekly RSI is significantly depressed.  These conditions warn of a sharp advance.

I maintain that a multi-month rally in the GBPUSD is likely underway, possibly to as high as the mid 1.60s.  View more in depth British Pound technical analysis.  Near term, the right shoulder of an inverse head and shoulders pattern could be forming now.  This is a pattern to watch closely as we head into 2009.   1.4550-1.4675 is potential support.

The expected retracement is underway and short term resistance is at 1.1257.  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 in terms of price but not time.  The rally from .9634 took 9 months and this is just the second month of the corrective decline.  A near term possibility (next few weeks) is that the USDCHF drops below 1.04 in order to complete an A wave within an A-B-C drop from 1.23.  A choppy and time consuming B wave would then follow.

The drop below 1.2120 satisfies minimum expectations for the decline from 1.30.  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.  Staying above 1.1459 keeps this 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 a B wave drifts lower from here.

I wrote yesterday that “a 4th wave is due soon and could come back to .5757 (former support).  The potential countertrend movement does not warrant staying bullish near term.”  A push through .61 could begin soon but the presence of trendline resistance makes this trade a risky proposition.  

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.

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