The dollar’s rivals are holding up, making it likely that a larger countertrend move is underway. The next few days may be choppy as a new direction is established.
We maintain that a corrective advance is underway from 1.3880. The rally to 1.4480 is probably wave a (the first wave) in a 3 wave correction. Wave b is underway now and could unfold as a triangle, so beware of a volatile range over the next day or two. 1.4908 is resistance going forward.
Staying bearish has paid off as the USDJPY has plunged, making it more likely that larger wave 5 (within the 5 wave decline from the 1970s) is underway towards our long term target of under 80. Specifically, the decline from 110…65 is wave 3 of 5 (from 124.13) and 3rd waves are often sharp. Price should remain below 106.38.
The GBPUSD is headed higher in what may be a B wave within either a flat or triangle that is underway from 2.1160. As such, we are expecting a large portion of the decline from 2.1160 to be retraced. Resistance on the daily is not until 1.88. Similar to the EURUSD, the next few days could be choppy as a small correction plays out. Support is at 1.77.
We wrote Thursday that “the USDCHF advance from 96.47 is nearing potentially major resistance from a Fibonacci confluence and former congestion area. The 61.8% of 1.2566-.9647 is at 1.1453 and the 161.8% extension of the .9647-1.0624 rally is at 1.1590. The December 2007 high is at 1.1594. Like the GBPUSD, yesterday’s inside day warns of a change in trend.” The USDCHF has come off nearly 400 points since Thursday and we expect the decline to continue in the weeks ahead. Initial support is not until 1.0842.
The USDCAD reversed at a Fibonacci confluence (61.8% ext. of the .9055-1.0378 advance and 61.8% retrace of the decline from 1.1875 to .9055). If the A-B-C count above is correct, then the USDCAD is headed back to parity at minimum but possibly to a new low in the next year.
As long as the AUDUSD is below .8261, greater bearish potential exists. The most bearish count treats the decline from .9850 as a series of 1st and 2nd waves with wave ii of 3 complete at the mentioned .8261. A flat as wave ii is possible in which case price would spike above .8261 before the decline resumes.
5 waves down from .7921 appear to be complete. As such, a countertrend move back to the .7200 area or higher is expected. This level intersects with the underside of a former support line that was broken in August. The NZSDUSD has held up better than the AUDUSD, staying above the low made last week. This is a potential divergence that warns of a larger advance.
¹ BIAS TABLE is a summary of directional bias for each pair. The ideas are subjective and are subject to change everyday although biases typically remain for at least a few days and sometimes a few weeks or more.
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 <[email protected]>