Euro Continues to Underperform; Any Hope for Bulls?

Thu, 05 Feb 2009 09:07:34 -0500

By Jamie Saettele, Senior Currency Strategist

-EURUSD bullish outcome near term still possible
-USDJPY short term inverse head and shoulders
-GBPUSD breaks above 1.46
-AUDUSD and NZDUSD find support at .64 and .50


Euro / US Dollar


In recent days, I have written that “the decline from 1.47 may be a rare triple zigzag (3 zigzags).  There is a bearish count from 1.47, but even this count is bullish at this point as the EURUSD should ‘correct’ a portion of the decline.”  I want to present that bearish count in order to illustrate the upside potential in this instance.  The ‘5’ down sports a diagonal as wave v of 3.  The former 4th wave would be a minimum expectation for strength, which is at 1.3333.  Another potential zone is the 1.3676-1.3916 zone.  This is the 50%-61.8% retracement of the decline from 1.4723. 

US Dollar / Japanese Yen


The USDJPY remains in a quiet range as the pair continues to hold the double bottom that was made just above 87 in late January.  The larger trend does remain down as long term wave structure calls for a drop to an all-time low (below 80).  The trendline drawn off of highs from October 2008 and January as well as the 50 day SMA both favor bears.  Shorter term, there are bullish implications from a potential inverse head and shoulders pattern (circled).  Coming under 88.45 (shoulder level) would begin to favor a break of 87.09 sooner rather than later.  It is difficult to control risk right now with the pair in the center of a range.  It is best to wait for either break of 87 (to go short against 91.33) or a spike through 91.33 (to go short against 94.67).     

British Pound / US Dollar


5 waves up from suggest that the larger GBPUSD trend has turned up.  An expanded flat is complete at 1.4049.  Risk for bulls can be moved to 1.4363.  Measured objectives are in the 1.50-1.5550 zone.  Chart resistance is at 1.5378.

US Dollar / Swiss Franc


The next level of USDCHF measured resistance is where wave c of B would equal wave a of B; at 1.1822.  However, it is possible that a wave B top is in place now.  Those willing to take the risk can establish shorts against 1.2303, targeting a drop below 1.0367 over the next few months.  The decline from 1.1720 is promising for bears (can be counted as an impulse).  I have also presented a bullish alternate that is in place as long as price is above 1.0861.  Under this count, the decline from 1.2303 was wave C of an expanded flat.

US Dollar / Canadian Dollar


I am zooming out and showing the daily chart in order to better show the triangle that is forming (and has been underway since October 2008) as wave 4.  Taking up over the 3 months now, the break from this triangle should be violent.  Near term, I favor a drop below 1.2020 in order to complete wave e (triangles are labeled a-b-c-d-e).  Aggressive traders may wish to trade the short side against the 1.2387 but the highest probability strategy is to wait for wave e to end before attempting a long position (maybe later this week or early next week) against 1.1459 for a move upwards of 1.40.

Australian Dollar / US Dollar


Short term structure is not clear in the AUDUSD.  This is often a sign that a correction is unfolding.  The decline from .7275 could be a B wave of a flat or triangle that began at the October low.  There is also an extremely bearish count that places a wave (2) (or B) high at .7275; this count is valid as long as price is below .6737.  A push above there would favor a larger corrective advance, perhaps above .7275 in order to complete a flat.  Short term structure is bullish above .6351.

New Zealand Dollar / US Dollar


There is a clear ‘5’ down from the 2008 high and a corrective advance from the 2008 low to .6090.  The decline from there is probably the first leg of the next bearish cycle.  An advance, albeit a corrective one, would likely reach the .5380-.5551 zone.  The count is similar to the EURUSD count in that the first wave of the next bear leg may be complete and a recovery is expected prior to resumption of the downtrend.  



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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