A load of evidence suggests that a US dollar top is in place. Coming event risk presents an opportunity to fade any post-release USD strength.
The favored count that we presented yesterday (terminal 5th from a triangle) appears to have been correct. The EURUSD found bottom in late European trading yesterday and has rallied over 130 pips from the low. Price has pushed through the top side of the channel that had contained wave 5, signaling the reversal. Watch out for event risk tomorrow when Trichet speaks…but probability is high that the trend is now up.
There is not much new to mention about the Yen. “It’s not pretty, but the USDJPY has made a series of lower highs and lower lows since the August top at 110.65. This, along with price below the 21 day SMA, is bearish. Favor the downside as long as price is below 110.28 (price ideally remains below 109.72).” Watch for potential support at a trendline drawn off of the March and July lows; near 107.25.
The GBPUSD continues to slide, but it is clear that 5 waves are nearing completion from the July 15 top. A large correction, back to at least 1.88, is expected to begin soon. The structure is not as clear as the EURUSD. With the EURUSD, it is fairly clear that wave 5 consists of 5 waves - which is why we view the probability as high that a low is in place. The same can not be said for the GBPUSD although a return to at least 1.79 looks likely in the near term.
The USDCHF is in the exact same position as the EURUSD, but as the inverse. The rally from the triangle is in 5 waves and likely complete. Moves from triangles are terminal so a large decline is probably in its early stages.
I’ll look at candle charts when warranted. We were expecting a top to form near 1.08 and the massive outside candle that occurred yesterday suggests 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).
There is still a chance that a flat is underway and that the NZDUSD will turn higher from near current price and complete its correction above .7215. However, there is also a very bearish count that treats the decline from near .72 as a series of 1st and 2nd waves. A 3rd of a 3rd would begin soon, but not until a push through .6896. .6940 is potential resistance. The bearish count is valid as long as price is below .7067. Given the evidence of coming USD weakness, NZDUSD bears should be careful.
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
