Dollar Decline Expected from Current Levels

Thu, 15 Jan 2009 08:10:20 -0500

By Jamie Saettele, Senior Currency Strategist

-euro / dollar support from November breakout level
-USDJPY finds a bottom
-British Pound ready to surge
-AUDUSD and NZDUSD back to .68 and .53



There is very little change to the EURUSD analysis.  The pair is in a large correction of the entire drop from 1.6040.  Specifically, the decline from above 1.47 is wave b in what is either a triangle or flat that began at 1.2327.  Support is strong at the current juncture, which is the confluence of the November 25th high / top side of former trendline resistance.  A wave b low may be in place at 1.3073.  If so, then wave c of B is underway towards 1.40 (if a triangle) or above 1.4723 (if a flat).


There are 5 waves down from 94.67, therefore a correction is expected.  Resistance begins at the 38.2% of 94.67-88.76; at 90.97.  The 50% at 91.67 intersects with the former 4th wave extreme.  Divergence with RSI at the b wave low is additional evidence that a temporary low is in place.


As long as 1.4347 is intact, there is potential for Cable to continue the advance from that level and exceed 1.5378 as part of a large correction of the entire drop from 2.1160.  Recent COT data supports a bullish stance regarding the British Pound.  


The sharp drop from 1.23 is in 5 waves and probably wave A within an A-B-C correction that will end below 1.0367.  The rally from 1.0367 is the B wave of that sequence and likely tests resistance from Fibonacci 1.15, eventually.  Since the advance from 1.0861 is an impulse (5 waves), wave b is considered complete at 1.0861.  Staying above 1.1095 keeps the short term trend bullish. 


Recent strength in the USDCAD suggests that a triangle is unfolding as wave 4.  Triangles unfold in 5 waves (a-b-c-d-e) and wave d is underway now.  There is potential resistance at 1.2520 and 1.2750 going forward.  The best strategy is to wait for wave e to end before attempting a long position (may be at least a week).  Near term, wave d is nearing completion (should end this week).


I wrote yesterday that “the pair appears headed lower in a 5th wave that will end below .6574.  A correction of the decline from .7275, potentially sharp, would then be expected.”  That correction is probably underway now; back to at least .6818. 


The NZDUSD decline extended a bit in its 5th wave but that does not change the call for a bottom and rally.  A return to .5603 is expected.  RSI divergence with recent lows is additional bullish evidence.



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.


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