daily technicals

Euro and Swiss Franc Rallies Considered Extreme

Thursday, 18 December 2008 13:33:02 GMT  |  Jamie Saettele, Senior Currency Strategist

-Euro Hits 200 day SMA
-British Pound vulnerable to weakness below 1.5239
-CAD, AUD, and NZD hit resistance

This is truly an historic month (and year for that matter) for the EURUSD.  At this point, 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.  The EURUSD sliced through 1.4 (50%) and 1.45 (61.8%) like a warm knife through butter and is now putting the 200 day SMA (red line) to work.  The diagonal line on the chart is the former long term support line drawn off of the February 2002 and March 2006 lows.  That line crosses 1.4776 today and increases about 6 pips per day.  Worthy of note is that Bollinger Band difference is higher than it was during the strongest part of the previous decline.  If anything, this suggests that at least a range should take hold soon.   

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 issued an alert yesterday in the Forex Alerts section, mentioning that “the GBPUSD is vulnerable to a drop below 1.5239 in an ongoing correction.  Potential support is at the 61.8% Fibonacci of 1.4812-1.5728 at 1.5162…shorter term minded traders may wish to lighten up on longs at this point given the potential for a 300 pip drop from the current juncture.”  This pattern appears to be playing out as the rally from 1.5239 is corrective.  A drop below there is expected prior to resumption of the larger advance.  The larger trend is up as long as price is above 1.4812.

The USDCHF nearly dropped below 1.04 this morning.  Potential trendline support drawn off of the March and July lows may provide the demand needed to inspire a rally / consolidation.  BB difference has exceeded the level that was reached at the height of the early 2008 decline that saw the USDCHF plummet below 1.  The implications are that the decline is stretched and that at least a retracement is due.

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.  Initial resistance is at 1.2127.  The position of RSI on intraday charts and the US dollar being at potentially major support relative to the euro and Swiss Franc turn the technical picture in favor of the USD relative to the CAD in my opinion.    

The AUDUSD has satisfied minimum bullish expectations having exceeded .7022.  Still, the objective remains closer to the October 14th high / 38.2% of the decline from .9856; at .7256 (or higher).  Near term, the pair could correct along with the other USD pairs.  Support begins at .6859.   

The NZDUSD nearly reached the minimum objective of .6137, falling short at .6090 last night.  I have put forth a potential short term count, which suggests 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.

 

 

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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