US Dollar at Risk of Bearish Break from Consolidation

Tue, 21 Jul 2009 10:11:38 -0400

By Jamie Saettele, Senior Currency Strategist

Although the US dollar could stage a short term rally (a few days), evidence favors a bearish break from the month + consolidation.  The EURUSD and USDCHF counts are clearest, and targets are above 1.4720 and below 1.0370.


Euro / US Dollar

The count in which a 4th wave triangle is complete is favored so strategy this week and next is to prepare for a break above 1.4340 and then 1.4720.  Near term (today / tomorrow), there is certainly the risk of a pullback (maybe as wave ii of 5) in order to correct the short term overbought condition.  1.4050 is potential support.

British Pound / US Dollar

A triangle may be in its latter stages in the GBPUSD.  Triangles consist of 5 waves (a-b-c-d-e) and the rally from 1.5980 would be wave d of the triangle.  Favor the downside to at least 1.6260 near term in order to complete the triangle.  Such a drop would correlate with a short term decline in the EURUSD.

Australian Dollar / US Dollar


The AUDUSD series of lower highs (and lower lows) since the June high of .8270 is no longer as price has exceeded .8162.  Recent commentary has focused on the fact that “bigger picture, the AUDUSD is at risk of a significant decline as the structure of the rally from .6005 is corrective (3 waves)…”  While this is true, the larger decline will probably not occur until price exceeds .8269 in wave v of C.  .8385 (61.8% of the decline from .9856) is potential resistance.  Like the EURUSD, expect a short term corrective decline before additional strength.

New Zealand Dollar / US Dollar

The NZDUSD has exceeded its 2009 high of .6601.  Expect additional strength over the next several weeks (at least) to complete the rally from below .50.  .6950 (pivot high from September 2008) is potential resistance. 

US Dollar / Japanese Yen

The drop below 93.50 eliminates the bullish triangle count and leaves us with the bearish count in which the decline from 101.50 is a series of 1st and 2nd waves.  Resistance from Fibonacci extends to 95.00.  Bears are favored against 97.00.

US Dollar / Canadian Dollar

The extent of the rally from 1.0782 almost assures that the entire decline from 1.3068 is complete.  Additionally, the rally from 1.0782 unfolded as an impulse.  On the 10th, I wrote that “I am not sure if the rally from 1.0782 is complete.  A thrust higher from a running triangle is possible before a corrective decline.  It is best to wait for clarity here before taking a strong stand.”  The thrust higher was wave B of an expanded flat.  Wave C is in 5 waves therefore a bottom and reversal is favored. 

US Dollar / Swiss Franc

Sticking with the USD bearish count, expectations over the next several weeks are for a thrust lower that ends below 1.0367.

British Pound / Japanese Yen

The larger GBPJPY trend has turned back down.  Favor the downside against 160.34.  A drop below the January low of 135.00 is expected eventually.  Coming under 152.40 would bolster the bearish case.  

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.  Follow his intraday market commentary at DailyFX Forex Stream.
Please send comments about this report to


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.