daily technicals

Dollar Shows Signs of Forming at least a Short Term Top

Wednesday, 14 January 2009 13:08:12 GMT  |  Jamie Saettele, Senior Currency Strategist

-euro / dollar move back to 1.35 expected
-British Pound bullish above 1.4350
-NZDUSD 5 waves down - corrective rally expected

The decline from above 1.47 is wave (b) in what is either a triangle or flat that began at 1.2327.  In either case, additional downside is expected as long as price is below 1.3802 (1/8 high).  I am treating the decline from 1.4723 as a double zigzag (a-b-c-x-a-b-c) and the decline from 1.3802 is probably wave a of the second zigzag.  As such, wave b should begin soon and initial resistance is just shy of 1.35.  The alternate count treats the decline from 1.4723 as an impulse (5 waves).  In this case, a corrective advance, potentially back to 1.38, would begin soon (since 5 waves appear complete).  RSI is oversold and divergent on intraday charts, which favors a bottom near current levels.       

To review, the USDJPY rally failed just short of “the 61.8% of 1006.60-87.09 at 95.21.  This is also the center of a former congestion zone (roughly 94-97) as well as the 100% extension of the rally from 87.09 to 91.31; at 94.08.”  The rally from 87.09 is in 3 waves, which is corrective.  As such, a drop below 87.09 is expected.  Near term, the decline from 94.67 appears impulsive and a small second wave corrective advance may be complete at 91.69.  Staying below there keeps the bear count on track.  A move above 91.69 would bring to the forefront the possibility that the corrective advance from 87.09 is not complete and that a complex correction (w-x-y) is underway that will end above 95.21.

As long as 1.4347 is intact, there is potential for Cable to continue the advance from that level and exceed 1.5378 as part of a large correction of the entire drop from 2.1160.  Recent COT data supports a bullish stance regarding the British Pound.   

The sharp drop from 1.23 is in 5 waves and probably wave A within an A-B-C correction that will end below 1.0367.  The rally from 1.0367 is the B wave of that sequence and likely tests resistance from Fibonacci 1.15, eventually.  Since the advance from 1.0861 is an impulse (5 waves), wave b is considered complete at 1.0861.  Near term, it is unclear whether or not a small second wave is complete. 

Recent strength in the USDCAD suggests that a triangle is unfolding as wave 4.  Triangles unfold in 5 waves (a-b-c-d-e) and wave d is underway now.  There is potential resistance at 1.2520 and 1.2750 going forward.  The best strategy is to wait for wave e to end before attempting a long position (may be at least a week). 

I wrote yesterday that “he AUDUSD has dropped below .67 and at least a corrective advance is due in what could be a small 4th wave.  Initial resistance is at .6784.”  The high last night was at .6818 and the pair appears headed lower in a 5th wave that will end below .6574.  A correction of the decline from .7275, potentially sharp, would then be expected.  

The NZDUSD decline is a bit more mature than the AUDUSD drop.  The NZDUSD drop is already in 5 waves, so expect a bottom to form soon (today or tomorrow at latest) and for price to return to at least .5603 (former 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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