Dollar Stronger but Underlying Trend Unclear

10/01/2008 11:34 am EST

Focus: FOREX

Jamie Saettele

Senior Technical Strategist, FXCM

Chart

The EUR/USD (and the USD in general) is at a crossroads. The advance from 1.3877 is in three waves to this point (corrective) and the drop below the short-term support line favors bears. Still, it is likely that everything from 1.3877 is corrective and that the drop from near 1.49 is the second leg of a larger correction (X wave?).        

Chart

The USD/JPY range persists. There is little confidence right now in directionality at this time.  That feeling in itself warns of a breakout though. A break above the resistance line that has contained price since the end of August would warrant a bullish breakout play. A drop below 103.52 warrants a bearish bias.        

Chart

The advance from 1.7443 is in three waves but probably only the first leg of a larger correction. I favor this scenario because the breakdown that led to the decline to 1.7443 was from a triangle. Breaks from triangles often lead to a retracement that brings price back to the center of the triangle (at least). In this case, the center of the triangle is near the 61.8% of the entire decline from 2.1160; at 1.9658. 1.7904 is the 61.8% of the rally from 1.7443 and may provide support that leads to a bottom in wave X. It is possible that bottom is in place at 1.7955.      

Chart

Expect weakness in the USD/CHF and a break below 1.0686. Price ideally remains below 1.1092 going forward, which is close to the 100% extension of 1.0686-1.0940/1.0799.      

Chart

The USD/CAD bounce from 1.03 may be a small fourth wave within the impulsive drop from 1.0827. Tracing out this fourth and then a fifth wave would confirm my longer-term bearish stance. 1.05 (38.2% Fibo is at 1.0493 and former fourth wave is at 1.0519) is serving as resistance.        

Chart

The decline from .8524 is either a B wave within a larger correction from .7799 or the beginning of the next bear leg in a long-term downtrend. A break of .7799 would eliminate any bullish count.           

Chart

The advance from .6435 is in three waves so the long-term decline may be back underway. It is also possible that a larger correction is underway that will end closer to .72. Action over the next several days should help to clear things up.

By Jamie Saettele, Senior Currency Strategist for DailyFX.com

Related Articles on FOREX

Keyword Image
The Fabulous Shrinking Renminbi
09/27/2017 1:13 pm EST

As of August 2015, renminbi (RMB) in payments globally accounted for 2.8 percent of the total, the f...