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Dollar Extends Gains as Major Reversal Continues

The dollar rally continued Friday morning as expected.  Although a decline (dollar) is possible over the next few days, it should prove corrective and give way to more strength.  The trend has changed.

 

As focused on yesterday, an important top (multi-month) is in place at 1.6018.  The EURUSD is ultimately headed lower in a large 4th wave and Fibonacci support does not begin until 1.4668.  If 5 waves are complete or close to complete, then there will be an opportunity to short / add to shorts on the wave 2 rally.  Of course, the decline could extend so do not mistake the possibility of a wave 2 rally with the opportunity to turn short term bullish.  The EURUSD has turned and is headed lower in the coming weeks and months. 

STRATEGY:  Short, against 1.5905, target below 1.5342 

Visit our recently updated Euro Currency Room for specific resources geared towards this currency.

The surge through 104.64 negates the immediate bearish bias.  We still maintain that the larger trend is down but a larger corrective advance may be unfolding.  If so, then a potential reversal point is the 100% extension of 95.72-102.95/100.02 at 107.25.  Still, the larger trend is down and we will be looking for opportunities to short.     

Visit our recently updated Yen Currency Room for specific resources geared towards this currency.

We are treating the drop from 2.0396 as a leading diagonal (wave 1 of C within the A-B-C decline from 2.1160).  Under this interpretation, the GBPUSD rally from 1.9599 is wave 2 within the 5 wave drop (wave C) from 2.0396.  The nature of the rally this morning suggests that wave 2 is not over and that it will end above 2.0025, probably near the 61.8% of 2.0396-1.9599 at 2.0092.

Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.

We wrote yesterday that “the advance is most likely a C wave that could test 1.0473 (where C = A).”  The USDCHF is nearing that level, which should provide resistance.  The wave count on the daily is much clearer and our preferred count indicates that a rally back to the 1.10/1.12 level is likely.  As such, we will look for long opportunities.

We remain aggressive USDCAD bulls as advances since the .9055 low are in 5 waves and declines are in 3 waves.  Near term, price should remain above .9998 and we will not even think about an objective until the pair has exceeded 1.0324.

Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency

STRATEGY: Bullish, against .9987, target above 1.0324

We wrote yesterday that “if we get 5 waves down from .9541, then we’ll get bearish against that level.”  The decline is in 5 waves, therefore the best strategy is sell strength against .9541.  Resistance begins at .9373.

The intraday patterns remain a mess so we are sticking with the bigger picture.  An a-b-c (corrective) advance may be complete at .8033.  Our longer term bias is that a large wave B of an expanded flat is complete at.8215 and that the NZDUSD is headed lower in a C wave that will eventually drop below .5927.  The combination warrants a bearish bias.  Risk can be moved to .8033.

STRATEGY: Bearish, against .8033, target below .7781

 

Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com

 

[1] STRATEGY is a summary of our best technical ideas.  The ideas are subjective and are subject to change everyday although trades are typically held for at least a few days and sometimes a few weeks or more.  Ideas are also included for crosses throughout the week; these are published at separate articles at DailyFX.