The USD will probably strengthen slightly before continuing lower in what is viewed as a correction of USD strength. In other words, there is an opportunity to sell USD strength.
The drop below 1.4656 (to 1.4630) completed wave v of 5 and the 5 wave drop from 1.6039. The advance from the low is probably just wave i of A in the A-B-C correction that is underway now. Look for support in the 1.4720/50 zone (4th waves of one and two less degrees). This advance that ensues is expected to reach just shy of 1.50 at minimum. Additional bullish evidence is the bullish engulfing candle pattern on the daily and RSI, which has turned up from below 30.
As long as price is above 108.36, our preferred count is that wave C of Y (within the W-X-Y from 95.72) is underway towards 116-118 (these are measurements that we discuss in more detail in the morning technicals), which the interest rate outlook favors as well. Short term, 109.23/34 should provide support. This is a Fibo confluence / daily pivot support level. The 200 day SMA at 108.90 may provide support as well.
We mentioned the potential for an inverse head and shoulders pattern yesterday and that pattern was confirmed just a few hours ago as the GBPUSD broke above the neckline. Price should remain above 1.8536 and potential resistance is the 4th wave of one less degree at 1.8786. It seems more likely though that this advance will extend into the 4th wave of two less degrees at 1.9034 as the Fibo zone does not even begin until 1.9140. 1.8575-1.8625 is support.
Finally, the USDCHF has turned over from the channel resistance that we had focused on in recent days. Channel support is near 1.0870 but look for resistance near 1.0951-1.10 in order to position for a larger decline. Structural support begins at 1.0823 but Fibo support does not begin until 1.0641.
We maintain that 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. Coming under 1.0543 would require a reassessment of the situation.
5 waves down are already complete in the NZDUSD and a corrective advance is underway now. Wave A of an A-B-C correction is likely complete at .7159. However, notice that the rally is in 3 waves itself. This means that a flat is probably underway. In a flat, wave B retraces a good deal of wave A (sometimes 100% of wave A). Expect a choppy decline in wave B, perhaps as deep as .6950 or lower over the next few days before a strong wave C rally begins.
Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 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 at [email protected]
