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US Dollar Corrective Rally Underway: Look to Sell It

Tuesday, 05 February 2008 13:40:57 GMT

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Written by Jamie Saettele, Technical Currency Strategist
View our NEW REPORT that includes TREND analysis and SENTIMENT analysis. This is released every Monday. Keep in mind that Daily bars analysis will not change as often as 60 Minute bars analysis. STRATEGY is only included for the highest probability setups.

02-05-08techs1

02-04-08techs5

We maintain that the decline from the November 2007 high at 1.4966 is the wave 3 top within a 5 wave advance from the June 2007 low at 1.3261. Since 1.4966, the EURUSD has either completed a flat as wave 4 or a triangle is still unfolding as wave 4. Either way, higher prices are expected in the coming weeks with objectives in the mid 1.50s. This could complete larger wave 3 within the 5 wave advance from the November 2005 low at 1.1638. 
 
Visit our recently updated Euro Currency Room for specific resources geared towards this currency.

02-05-08techs3

Wave d of the triangle is underway now. We wrote yesterday to “expect wave e to end near 1.4589/1.4659; this is the 61.8% to 50% of 1.4365-1.4953.” Price is at the upper end of this zone now but we would like to see this leg of the triangle continue for at least two more days. Therefore, look for a long entry near the bottom of this zone (1.4589) and maybe even near the 1/23 low at 1.4511.  
 
Visit our recently updated Euro Currency Room for specific resources geared towards this currency.
 
STRATEGY: Long in halves at 1.4595 and 1.4520, against 1.4359, target mid 1.50s

02-04-08techs7

Longer term, we maintain that a 12 year triangle ended at 124.13 in June 2007 and that the USDJPY is headed lower for a test of its 1995 low at 81.12. Since 124.13, the USDJPY has traced out a series of 1st and 2nd waves. The decline should accelerate in the next month in wave 3 of 3. This forecast remains intact as long as price is below 114.65. 
 
Visit our recently updated Yen Currency Room for specific resources geared towards this currency.

02-05-08techs5

We maintain that the strong rally from 104.97 is a c wave that will complete a larger second wave as an expanded flat. Price is expected to exceed 107.92 and resistance should be strong in the 108.33/50 area. Look for a top and reversal near there. This count is intact as long a price is below 110.11. 
 
Visit our recently updated Yen Currency Room for specific resources geared towards this currency.

02-04-08techs9

For the first time in months, the GBPUSD daily count is clear. The pair has declined in 5 waves from 2.1160, indicating that a significant top is in place. The 5 wave decline is viewed as either wave 1 in a 5 wave bear cycle or wave A in a 3 wave bear cycle. In other words, longer term bearish potential is great. The rally underway now is either wave 2 or B and we will look for a top in the 2.0033-2.0463 zone. This corrective rally probably lasts for weeks if not most of this month. 
 
Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.

02-05-08techs7

The rally from 1.9337 to 1.9957 is a 5 wave advance and is probably wave A within the A-B-C corrective rally. It is possible that a B wave low is in place at 1.9626. However, B waves are notoriously tricky and usually not as clear as the drop from 1.9957 is now. This has us thinking that a triangle or larger flat will occur before the wave C advance towards 2.00.
 
Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.

02-04-08techs11

A corrective 4th wave rally may be underway now within the 5 wave decline from the October 2006 high at 1.2768. The USDCHF will likely trade in a choppy manner for the next month or so, but with an upside bias before a decline in a 5th wave completes the entire decline from the October 2006 high and gives way to a multi-year low.

02-05-08techs9

A triangle could be in its early stages right now in the USDCHF.  The decline from the 1/22 high at 1.1122 is in 3 waves and the rally from the 2/1 low at 1.0728 is also in 3 waves (to this point).  Legs of triangles unfold in 3 waves so if a triangle is underway from the 1/22 high, then expect the next move to look something like what the arrows show on the chart above.

02-04-08techs13

The pattern in the USDCAD since the November low at .9055 is either an A-B-C rally that will lead to a new low (under .9055) or a 1-2 (expanded flat) base that will lead to a strong rally to new highs (suggesting that a multi-year USDCAD low is in place).  Either way, price will come below .9755.  Potential support from Fibonacci is at .9652 and .9511. 

 

Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency.

02-05-08techs11

The short term picture is clear. The decline from 1.0378 is clearly a 5 wave decline and an a-b-c corrective rally is underway now towards 1.0117. The next level of resistance is Fibonacci resistance at 1.0184. Look for a top and reversal near these levels in order to position for a drop below .9755.
 
Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency.
 
STRATEGY: Short in halves at 1.0119 and 1.0179, against 1.0385, target TBD (below .9755)

02-04-08techs15

As long as the AUDUSD rallies in 5 waves and declines in 3 waves, there is no reason to adopt a bearish outlook. The rally from .8512 is expected to exceed .9400 in the coming weeks. Objectives are near 1.00.

02-05-08techs13

The spike low on 1/30 at .8817 may have completed a small 2nd wave within a 5 wave advance from .8512. As such, wave 3 is probably underway now. Wave i of 3 is complete at .9100 and a wave ii pullback is underway towards the .8925-.8992 zone (this is the 61.8%-50% of .8817-.9100). 
 
STRATGY: Long in halves at .8995 and .8935, against .8815, target mid .90s and 1.0000

02-04-08techs17

The drop on 1/22 to .7383 completed a large correction that had been underway since November. Like the AUDUSD, the NZDUSD trend remains up and an upside breakout will probably lead to a test of the July 2007 high at .8108.

02-05-08techs15

The NZDUSD short term pattern is not clear. Still, given the daily count and the bullish AUDUSD count, it is reasonable to adopt a bullish stance against the 1/30 spike low (.7751). Potential support prior to that is .7869 (current price) and .7800.

 Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com
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