Dollar Forecast is Mixed against Major Currencies

Thu, 22 Jan 2009 08:41:08 -0500

By Jamie Saettele, Senior Currency Strategist

-euro / dollar and GBPUSD patterns near term bullish
-USDJPY correcting sharp drop
-AUDUSD and NZDUSD headed lower?



Yesterday’s strength in late New York trading may have signaled the turn that I have been expecting.  It is not confirmed that 1.2822 is the low, but the structure of the rally from that level is in 5 waves, which is promising for bulls.  For academic purposes, the decline from 1.4723 (wave (b)) is a double zigzag, which serves to correct the advance from 1.2327 (wave (a)).  The bullish objective is above 1.38 and possible 1.4723 (wave (c)).  Bigger picture, price action since the 1.2327 low is unfolding as a flat or triangle (a flat would see price exceed 1.4723 while a triangle would see price probably test at least 1.40…this move should take at least a few weeks…if not longer).


5 waves down from 94.67 followed by 3 waves up to 91.33 favor USDJPY bears.  I want to reiterate that the ultimate objective remains below 80 (all-time low).  While the USDJPY corrective advance is likely complete at 91.33, do not be surprised to see additional consolidation / correction of the drop to 87.  That sharp ‘panic’ decline is the kind of action that tends to mark at least short term lows in the USDJPY (as illustrated by 1 period ATR on the chart above).     


The GBPUSD fell to its lowest level in 23 years yesterday and a correction of the decline from 1.4985 is underway.  The decline from that level is in 5 waves and waves and a and b of the expected corrective advance are likely complete.  Expectations are for a rally to end above 1.4032 and test Fibonacci resistance, which begins at 1.4139.    


Over the past few weeks, I have written that “the rally from 1.0367 is the B and likely tests resistance from Fibonacci 1.15.”  The 61.8% of 1.2303-1.0367 is at 1.1524 and the USDCHF has managed to push through there.  The next level of measured resistance is where wave c of B would equal wave a of B; at 1.1822.  A wave B top is expected to form soon.  Those willing to take the risk can establish shorts against 1.2303, targeting a drop below 1.0367 over the next few months.


I have written at length in recent weeks about the triangle in the USDCAD.  Triangles unfold in 5 waves (a-b-c-d-e) and wave d is nearing completion.  The rally to 1.27 may have completed wave d, therefore a decline in wave e is expected. The best strategy is to wait for wave e to end before attempting a long position (may be late this week), although high risk takers may wish to try the short side against 1.3012, targeting a drop in wave e towards 1.20.


5 waves down from .7275 and 3 waves up from .6534 confirms that the larger trend remains down.  Near term, a corrective advance of one smaller degree may be complete at .6664.  A complex correction could end above .6664 but the bearish line in the sand is .6846.  The trend is bearish against that level, targeting a drop below .60.


There are 5 waves down from .6041 and 3 waves up from .5274.  This price action confirms that the larger NZDUSD trend is down.  Shorter term, the decline from .5551 appears impulsive and the correction of that decline may be complete at .5370.



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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