Euro: Signs of an Early Uptrend

Tue, 03 Mar 2009 08:48:53 -0500

By Jamie Saettele, Senior Currency Strategist

-EURUSD bullish outside day
-AUDUSD surges off of support line
-USDJPY to test 100
-USDCAD support near 1.27
-USDCHF expected to decline


Euro / US Dollar

The EURUSD is marking time but there are signs of strength such as today’s outside day that suggest the EURUSD is preparing for a significant rally.  The best count treats the consolidation since late January as a triangle, which would place the drop from that triangle as wave 5 in the 5 wave decline from the December high.  Under this count, a low is in at 1.25 and price is headed higher in order to more fully correct the decline from 1.47.  If 1.25 is broken, then there is the possibility that the decline from 1.33 is an ending diagonal as wave 5.  Reward to relative risk is high for bulls at this point, irrespective of which count is correct.

British Pound / US Dollar


The count on the daily, which shows 5 waves down from the 2007 high, indicates that risk of a sharp advance is high.  The count that I am working with now treats the rally from 1.35 to 1.4990 as wave A of a flat (flats have subwaves 3-3-5).  B waves of flats retrace a significant portion of wave A, sometimes retracing more than 100% of wave A (in the case of an expanded flat).  With this risk, being long at this point against 1.3990 is risky.  Still, the next large move is expected to be up through 1.4990; it is unclear whether or not this occurs prior to a test of 1.35.

Australian Dollar / US Dollar


In recent days, I have written “a word of warning to bears though, staying above .6245 keeps the larger range intact and there is risk of a rally that exceeds .6857 prior to resumption of the downtrend.”  Today’s sharp advance highlights that risk.  It is entirely possible that a larger flat is underway that will end above .7275.  Exceeding .6562 would shift the odds in favor of this bullish interpretation.

New Zealand Dollar / US Dollar


The NZDUSD has declined impulsively (5 waves) since its 2008 high and that decline was followed by a 3 wave rally (from the November low).  The drop from .6090 is viewed as beginning of the next bear leg.  Staying below .5201 keeps structure bearish.  Exceeding that level would shift the odds in favor of a rally through .5454 and potential test of .5630 (Fibonacci) prior to resumption of long term weakness.

US Dollar / Japanese Yen


Expect strength through 98.75 and a possible test of the 61.8% of the decline from 110.71 at 101 prior to a bearish opportunity.  This level is also former congestion from October and November of 2008.

US Dollar / Canadian Dollar


As I’ve favored the last few weeks, the triangle that has been underway since October is probably complete at 1.2020.  The breakout scenario is favored as long as price is above 1.2348.  Near term, there is potential support in the 1.2677-1.2722 zone.  This is a reaction low from yesterday as well as former resistance.  This is an area that one could add to longs or even initiate a long position if late to the game.  

US Dollar / Swiss Franc


Expectations are for the USDCHF to decline to at least 1.13.  This is where the ending diagonal began, which are usually fully retraced.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.
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