Forex Technicals: The Day Ahead, August 18

The GBPUSD sports a short term inverse head and shoulders pattern.  The EURUSD made an inside day.  Both developments are evidence of a short term reversal opportunity.   

On Thursday’s Day Ahead, we wrote about the 4th wave triangle and discussed potential levels that could produce a bottom.  We cited “1.4431 and 1.4673” and wrote that “1.4675 seems more likely given that this is the center of the November-February consolidation.  1.4668 is the 38.2% of 1.2482-1.6018.  Look for a significant low near 1.4650/75.”  The low on Friday was at 1.4656 and the EURUSD formed an inside day (candle pattern) today; which is suggestive of at least a pause in the trend.  Very short term, a rally back to the center of the triangle near 1.49 is expected.

As long as price is above 108.36, we favor a rally to the 116.60/118 area.  These are longer term measured objectives that we refer to often in the morning technicals (released around 9 am EST).  Near term, look to the short term Fibo zone (109.23-77) for support.

We wrote Thursday regarding the GBPUSD that “wave 5 is considered underway from 1.8786…the GPBUSD objectives for the end of wave 5 are at 1.8532 and 1.8375.  A significant low could form near one of these levels.”  Friday’s low was at 1.8512.  It is not confirmed that a low is in place, but a potential inverse head and shoulders pattern has formed.  Look for support near the left shoulder low (1.8618).  A rally through 1.87 (neckline) would confirm the head and shoulders and present a short term bullish opportunity against the right shoulder low.

The USCHF is consolidating near the top side of a channel.  The presence of 1.10, channel resistance, and the possible completion of 5 waves from 1.0010 make the USDCHF prone to a corrective decline. 

The drop that ended just below 1.0550 was probably a 4th wave correction.  As such, expectations are for a new high (above 1.0726) to complete the advance from .9974.  Longer term objectives are at 1.08.  Look for a top and reversal near there.

The 4th wave that was expected appears to be complete at .8795.  Expect a new low, below .8591, before a more significant low forms.  The psychological .85 level is potential support.  It is also possible that a triangle is forming as wave 4.  If this is the case, then the 4th wave price extreme is already in place at .8795 but the AUDUSD range would tighten before a terminal thrust lower completes the decline.    

The NZDUSD rally stopped just shy of where the two legs would be equal (.7178).  3 wave movements are corrective so it is possible that the advance is complete at .7159 and that the NZDUSD is headed to a new low.  With this in mind, a cautious bearish bias is warranted against .7159.    

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