The dollar continues to gain but the USDJPY break below a supporting trendline suggests a bigger bear move for the pair.
The EURUSD has continued lower and price is now below a trendline that had held price since 2002. Could this be the beginning of a multi-year bear market? That is possible but the long term bullish count that calls for a 5th wave to end above 1.6038 is still valid.
Repeating what we’ve mentioned in recent days; “the USDJPY has made a series of lower highs and lower lows since the August top at 110.65. Favor the downside as long as price is below 110.28 (price ideally remains below 109.72).” Also, 3 month volatility is at a level that typically precedes rapid declines. The USDJPY has broken below the trendline that had contained price since the March low at 95.72. This is a strong bearish signal. Risk for bears is now at 109.17.
Various sentiment measures are extreme and suggest that a turn is imminent. “COT positioning is the most extreme in its history by some measures (net speculative shorts and net commercial longs).” 13 day RSI is at its lowest level since the 1970s and FXCM SSI flipped to short today (a bullish signal). Also, the decline from 2.1160 is in 3 waves, with the 2 down legs separated by a triangle. This could be the first leg of a large multi-year triangle or flat.
Another reason to favor a turn in the USD is the USDCHF pattern. The advance from 96.47 has reached the 50% retracement of the decline from 1.2569. The 4th wave of one less degree stretches to 1.1594, which is just above the 61.8% of the decline from 1.2569. If the USDCHF is going to roll over, this is the area that it should do so.
The outside day along with RSI divergence suggests with a high probability that a top is in place. “The high of 1.0775 was just pips away from an important Fibonacci confluence at 1.0791/98 (61.8% ext. of the .9055-1.0378 advance) and 61.8% retrace of the decline from 1.1875 to .9055. A return to the center of the triangle near parity is probably underway now (at minimum).”
5 waves down from .7921 appear to be underway. As such, a countertrend move back to the .7200 area or higher is expected.
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 jsaettele@dailyfx.com
