Weekly USD Index Analysis is provided by Phincorp Capital Markets. To learn how you can receive Daily Elliott Wave Analysis and Trade Signals FREE please visit www.Phincorpfx.com
Posted March 13th, 2006
What a week and, one may add, what a mess. I could find absolutely no reasons for the complete and utter destruction of what looked to be a clean - but incomplete - impulsive decline from 90.89 (the high of FEB 26th). That prompt rebound from 89.29 took me by surprise in the sense that we were in the process of turning near-term bulls at the 88.50-89.00 area, however the extent and internal strength of last week's rally was something I did not anticipate.
The implications from this wave of strength are that the larger wave B test of highs remains underway. Nevertheless, with the near-term rally pattern as ripe as it is and with a number of short-term momentum studies looking exhausted at the Friday's highs, I do expect a temporary retreat within the 90.02-45 range to relieve the market from its overbought condition before the larger uptrend proceeds towards 92.65. It would take a break above 91.46-71 to argue that the Dollar was rushing into a final wave B high, though you will have to be careful because ideal upside projections begin just 13 ticks above that area of resistance (i.e. at 91.84) and continue not too far into the 92.53-65 range.
Some wave ambiguity within the rally pattern from 89.29 coupled with the exasperatingly rangebound price action of the recent months demands us pay attention to the above illustrated alternate. Wave b of B CAN trace a more time consuming sideways pattern, with the next important development being a wave .c plunge towards 90.07-89.78, possibly 89.40-89.06. Failure to rebound promptly from above 90 would increase the chances of occurrence of this count, which other than delaying the final wave c of B leg up does not really bring anything of substance in the Dollar's wave pattern. It is just a different path into a short to intermediate term high.
In the daily time frame I continue to believe that the sluggish uptrend that the Dollar is attempting to maintain is nothing but a bluffy test of highs within an intermediate degree consolidation. To date each rally attempt has only revisited the underside of a previously broken uptrend line, a bearish omen for prices. It would take a break above 93.91-94.64 to convince me that we are tracing out something different at intermediate degree.
Speaking of possibilities on an intermediate-term basis our old running triangle �situation� remains a contender, with the Dollar probably topping in wave D around the current levels or somewhere within the 91.66-92.65 range. A subsequent wave E retreat will temporarily test 87.93-88.75 and as such set the stage for a significant intermediate wave (C) rally towards 100.72-105.52 in the 2nd part of 2006.
To make everybody's life complicated enough, here's yet another daily wave interpretation that violates no guidelines of wave formation. If the critical 92.65-93.91 is overcome, watch 94.14-64 and especially 96.35 which is within 35 ticks of a perfect 38.2% retacement of the 2001-2005 downtrend and also the level where wave equality is established within what could well be only intermediate wave (A) of a larger primary degree correction from the January 2005 lows. The subsequent wave (B) would be even more ferocious than what we project now under the main count, likely leading to a year-long, very severe, test of the 75-80 area.
For many years I have observed that at critical junctures EURGBP is a very good leading indicator for EURUSD. The EURGBP weekly chart shown above has gotten my attention because the extent to which this market is congested at the moment is beyond impressive. This idea connected with the uncertain EUR$ / DX picture I have discussed in the previous sections.
The DMI Indicator depicted at the bottom of the EURGBP weekly chart is indicating an acute lack of any trending activity. This is one of those times when you should begin to worry, especially since the wave pattern is ALSO indicating that something is going to happen.
Technicians claim that triangles can be broken either way while Elliott Wave practitioners tell you that in triangles C wave extremes are critical and you go with the one that cracks first. In our case I can tell you this much: inability to cross 69.38-69.90 is likely to degenerate in serious, heavy selling in the months directly ahead while a break above that area will pertain to a move towards and likely above 72.64 pence. The move above the resistance line (the downward sloping line connecting the lower lows made since mid 2004) could be a wave E treat but a violation of 67.05-84 is required immediately to confirm that EURGBP was headed down in wave C of (B) towards 62-64 pence. Whatever happens you will keep an eye on 69.38-69.90 and 67.05-84. The fact that we are closer to the resistance does not necessarily mean it is resistance that will give way but for obvious reasons the proximity of the critical upside milestones makes an upside breakout slightly more likely.
Watch this cross in the next few weeks and months because it will most likely hint which way EUR/USD is going. Last time we had wave ambiguity in EUR$ was April 2002, at which time an EURGBP volcano was erupting towards 68 pence, indicating that EUR$ too was soon to break higher. Today's situation is not that convenient because the EUR/GBP deal is more of a two-way affair but I suspect it is going to tell us in advance what is happening with the highly convoluted pattern of the beaten single currency.
Comex gold cooperated nicely last week and plummeted within the 530-540 range of support we've been indicating as objective. The chart above is telling you the full story: either wave 4 down is complete and a terminal wave 5 up towards 589-596 / 623-631.80 is getting underway as we speak, or wave 4 continues to keep prices congested in a multi-month trading range before upside resolution above 600 is ultimately seen. Notice, however, that both counts imply that there is greater upside potential than downside risk at the moment. We will treat a break above 548.40-551.80 as a sign that a short-term low has formed and gold was headed back towards at least 572.70-577.90, if not 590-620 but until that happens back-up support is located at 532.00, 521.40 ahead of the loudly critical 492.20-503.90.
The internal countertrend decline of the larger wave d rally has gotten a touch too heavy but we maintain a positive short-term outlook on the Crude Oil. I continue to bet on a sideways symmetrical triangle for wave 4 but any violation of 54.05 will indicate that something different is being traced out, perhaps a flat or a double three consolidation. I am not going to speculate here and I am only going to say that 59.25-54.05 are now progressively more critical supports and that as long as they hold the crude is due to inch higher towards 65-68 $/barrel in the next weeks. Overall our intermediate-term and long-term targets remain at 85-100 $barrel and it would take multiple weekly closes below 48 to force us revise the larger wave pattern.