Euro Holds 1.40; Back to 1.44?

The EURUSD has held 1.40, which is pyschological support.  A move back to 1.44 over the next several days may be in the works.

Repeating what we mentioned yesterday, “the EURUSD RSI extreme occurred in mid August, making it likely that the drop from 1.4908 is wave 5 of the drop from 1.6038.  A rally through 1.4428 would be the first sign that a larger correction is underway.”  The EURUSD has held 1.40 and should be headed for a test of 1.44.

Bigger picture, the advance from 95.72 is in 3 waves (corrective).  Friday, the USDJPY broke below the trendline that had contained price since the March low at 95.72.  The gap open this week leaves the pair above the line now but 109.17 remains the line in the sand for bears.

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 finished at its lowest level since the 1970s on Friday.  On multiple time frames, divergence with RSI warns of a turn.  On the daily, a sharp pullback is needed to correct the extreme oversold reading.

The USDCHF advance from 96.47 has reached (and exceeded) 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% at 1.1453.  If the USDCHF is going to roll over, this is the area that it should do so.

“The high last week at 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).  If the A-B-C count above is correct, then the USDCAD is headed back to parity at minimum but possibly to a new low in the next year.  

There is little doubt that a multiyear top is in place just shy of 1.00 but an AUDUSD rally is expected to begin soon to at least correct the deeply oversold RSI reading on the daily.  There is no evidence that suggests a low is yet in place although the psychological .80 figure could provide the support needed for at least a short term low.

5 waves down from .7921 appear to be complete.  As such, a countertrend move back to the .7200 area or higher is expected.  This level intersects with the underside of a former support line that was broken in August.

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