Forex Technicals: The Day Ahead, September 18

The dollar should continue to give back gains that it's made since mid-July.  The USDJPY is considered in 'acceleration phase' to the downside as long as price is below 106.74. 

The EURUSD pattern is unfolding as expected.  Expect a break above 1.4485 soon.  Bullish targets are at 1.4687 and 1.5082 (100% and 161.8% extensions of wave A).  Ideally, price remains above 1.4071 but a continuation of wave B could result in a triangle or flat from 1.4485.  The bullish outlook is intact as long as price is above 1.3877.  Short term support is in the 1.4275-1.4207 zone (if needed…the EURUSD could break out from the current price).      

Evidence that favors bears…

1.) The rally from 95.72 is clearly corrective (3 waves).

2.) It is possible that the drop from 110.65 is a series of 1st and 2nd waves.  If this is the case, then the decline will accelerate and the USDJPY will tumble in a 3rd of a 3rd wave soon.  This outlook is intact as long as price is below 106.74. 

Cable has already broken above its wave 1 (or A) high of 1.8133.  The targets going forward for bulls are at 1.8430 and 1.8878.  These are Fibonacci extensions of the 1.7443-1.8133 rally.  Short term support is in the 1.81-1.8011 zone (again…if needed…like the EURUSD, the GBPUSD could break higher from near current price).   

The USDCHF dropped below 1.1044, signaling that a larger decline is underway.  1.0883 and 1.0659 are Fibonacci extensions that may provide support. 

The USDCAD reversed at a Fibonacci confluence (61.8% ext. of the .9055-1.0378 advance and 61.8% retrace of the decline from 1.1875 to .9055).  We have been expecting an important top to form.  That top could be in place just above 1.08.       

The AUD has remained the weakest against the USD.  The count we showed yesterday shows a potential 3rd of a 3rd decline about to begin to the downside.  We view this scenario as very low probability given that a larger USD decline appears to be underway against the other majors.  This ending diagonal count is valid and if correct, the AUDUSD would probably return to .8750/.88 (we can’t be sure about how long it would take since we do not know what kind of corrective pattern would unfold).

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.  The NZSDUSD has held up better than the AUDUSD, staying above the low made last week.  This is a potential divergence that warns of a larger advance.

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published 6-7 pm EST), Daily Technicals  every weekday morning (9-10 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 him at jsaettele@dailyfx.com