Euro Correction Will Lead to Next Large Rally

Tue, 27 Jan 2009 08:25:31 -0500

By Jamie Saettele, Senior Currency Strategist

-euro / dollar support at 1.3040-1.31
-GBPUSD could fall below 1.35 before finding bottom
-USDCHF resistance at 1.1500/80



The sharpness and structure of the rally from 1.2763 all but confirms that the entire decline from 1.4723 (wave (b)) is complete.  The advance from 1.2763 is an impulse (wave 1) and the 1.3040-1.3100 zone is potential support for the bottom of wave 2.   


To repeat yesterday’s comments; “I see it as likely that 91.33 is exceeded.  Patterns across the FX market (as well as other markets) suggest that ‘risk’ has returned for a few weeks. Expect the double bottom just above 87 to hold.  The bullish case is best served with price staying above 87.95.  Structurally, a triangle or flat could be unfolding from the December low at 87.09.”  There is no change to the USDJPY structure.       


A 4th wave corrective advance may be complete at 1.4246.  If so, then the GBPUSD is headed to a new low (below 1.35).  A significant low is expected to form below there however as the drop would complete 5 waves down at multiple degrees of trend (from 2.1160 and from 1.5728).  Only a rally above 1.4347 would begin to make the picture more immediately bullish.       


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).  Short term resistance is in the 1.1500/80 zone (congestion and Fibonacci).


The USDCAD should continue lower in wave e in order to complete the triangle that began in late October 2008.  Short term resistance is at 1.24.  The safest strategy is to wait for wave e to end before attempting a long position (maybe later this week?) against 1.1459 for a move upwards of 1.40.


The rally from .6534 and decline from .6846 could be waves a and b of an expanded flat.  Under a flat count, wave c would exceed .6846 before a larger decline continues.  Short term structure is bullish as long as price is above .6491.  Confidence in the AUDUSD count and directionality is low.


A flat (although not of the expanded variety) is also probably underway in the NZDUSD.  Exceeding .5370 may complete the correction from .5164.  There is potential resistance in the .5416/80 zone (former congestion).



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



DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.