A diaognal triangle appears to be unfolding in the EURUSD from 1.4908. A slow rally back to 1.4600/75 may begin soon as wave iv before the final low is registered later this week.
Continued weakness indicates that the EURUSD remains in a 5th wave from 1.4908. The corrective nature of the decline indicates that the drop from 1.4908 is unfolding as a diagonal triangle. Diagonals are slow and choppy and punish those that try and pick bottoms (yours truly). A slow rally back to 1.4600/75 may begin soon as wave iv before the final low is registered in wave v. The Euro has been moving in lockstep with oil, which bears watching.
We expect a major top to form soon (may already be in place above 110) due to the larger break from a 12 year triangle earlier this year. If 110.65 fails to remain intact, then the next potential level for a reversal is 113.28-114.65. Also, 3 month volatility is at its lowest since the last late December. Low volatility historically indicates a high probability that a sharp drop is around the corner for the USDJPY.
The weekly chart along with 13 week RSI shows the extreme nature of the decline. There have been 2 other times when 13 week RSI was this low; June 1989 and September 2000. Rallies of over 9,000 pips occurred within the next month on both occasions within the next 6 weeks before the GBPUSD dropped to a new low. Keep min mind that the historical readings are RSI on a weekly closing basis so we additional losses are possible this week before a reversal. Just be aware that the decline is extended and due for a major pullback.
On the daily chart, 1.1108-1.1594 is reversal territory. This area includes the 4th waves of one and two less degrees as well as the 50% and 61.8% retracements of wave 3 from 1.2569 to .9647.
The push through 1.0726 completed a small 3rd wave with the rally from 1.0411. A corrective decline in a small 4th wave should find support near 1.06 (38.2% Fibo and former support).
The drop below .6824 indicates that the corrective advance is complete. .6880 is short term resistance and the trend is bearish as long as price is below .7067. An objective (probably a week out) is .6550 (161.8% Fibonacci extension).
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
