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Candles and wave patterns strongly suggest that the US dollar has finally reached some sort of top.

I proposed the count above in last night’s Day Ahead.  To review, “the leg of the decline from 1.4871 is probably wave Y (making the correct count W,X,Y).  What is important is that the drop consists of 2 equal legs, RSI on multiple time frames is oversold and divergent and the decline from 1.4871 is separated by a triangle.  Moves from triangles are terminal and often retraced; this guideline would suggest a move back to 1.35.”  Today, the EURUSD made a key reversal (new intraday low but failed to close below the previous low).  This is a bullish sign, which supports the count above and a move back to at least 1.35.

Longer term, stay bearish as long as price is below 102.46 for the expected collapse (eventually below 80…it is difficult to say when exactly this will occur of course…as long price is below 102.46, it is possible).  Near term, the rally that began late today should face resistance in the 99.14-100 zone.  This is the 50% and 61.8% of the decline from 102.46 as well as former support (low of wave i). 

The GBPUSD is naturally in a position similar to the EURUSD.  The most recent drop, from 1.75, is from a triangle so a return to the center of the triangle near 1.71 is a reasonable expectation.  

The corrective nature of the rally from .9634 suggests a leading diagonal.  The rally is confined by converging trendlines and the pair has reversed from the line that connects the tops of waves i and iii.  Additional bearish evidence is today’s candle, which sports a long upper wick and is an inside day (engulfed by previous day’s prices).

The spike into and reversal from the combination of the 2004 low / 2005 high may be what was needed to stop the USDCAD from taking off into space.  Support does not begin until 1.21 (former resistance), although 1.13 is the former 4th wave, which is where corrections tend to end.

The AUDUSD has traded in a range since October 13.  Either a triangle or flat is unfolding.  I favor a flat now given the potentially USD bearish action in the pairs.  This means an eventual break above .7250.

A larger recovery may be underway.  A momentum extreme occurred at the August 12 low, which under this count would have been wave iii of 3.  Wave iii of 3 often exhibits the strongest momentum, so we are probably on the right track.     

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published 6-7 pm EST), Daily Technicals  every weekday morning (9-10 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.