The US dollar continues to make broad gains with the USDCHF surpasing our 1.1012 target sited in our August 6th update and now targeting 1.1446, while the EURUSD continues to move towards our previously sited 1.4358 target. GBPUSD continues the fall from the March 9, 2008 high at 2.0397 with a sustained break of 1.8512 targeting 1.8018. GBP is broadly weak today as the USdollar, Jpy. Chf and Euro have all made gains against the GBP. The trend remains firm for the US dollar as we will continue to look for trade opportunities with the trend. More updates later.
The GBPUSD remains in a very strong impulsive move to the downside with potential for much lower prices in the months ahead. However, there are events which must unfold before further extension to the downside to multi-year lows is confirmed. And should this confirm, then the move lower will be an explosive move as supported by high volume and significant momentum. Below we have broken our analysis into short term, medium term and broad term outlook.
Short term
The intra-day move lower from Thursday’s 1.8786 high is complete at Friday’s 1.8512 low, as the pair currently remains within the previously sited 1.8617-1.8681 intra-day consolidation zone. A sustained break of this zone will see continuation in the direction of the break with 1.8712 as the next upside target, while to the downside, a sustained open and close below 1.8581 will confirm prices are once again moving lower with 1.8512 and beyond as the objective..
In that the intra-day move from 1.8786 is merely one of several sub waves of a much larger extension to the downside beginning with the March 9, 2008 high at 2.0397, the next wave from the 1.9034 high will be complete at 1.8512 only if prices open and close on a hourly basis above 1.8712, otherwise, the move lower from 1.9034 remains active. A sustained break of 1.8712 will see prices move into a broader consolidation phase within a 1.8712-1.8835 zone and confirm the fall from 1.9034 is complete at 1.8512.
Medium-term
As to the medium term trend from the March 9, 2008 high at 2.0397 remains active as ONLY a daily open and close above 1.9232 will complete this fall with the August 15, 2008 low at 1.8512, as prices will then consolidate within a 1.9232-1.9677 zone before attempting another 5th wave move lower targeting 1.8512 and beyond.
Broad outlook
It is with the broad outlook that risk for a dramatic decline in the GBPUSD remains, as a monthly open and close below 1.8619 suggest GBPUSD will continue to move much lower in the months ahead with 1.7048 as the objective, however, it is likely that prices will consolidate within a 1.8619-1.9589 zone before further potential decline will occur. So, while prices remain below 1.9589, risk for an extension to the downside remains as such a move has potential to equal that which occurred 1992-1993. Again, this is not confirmed as there are several events which must also unfold within the short term and medium term trends before the broad trend lower is confirmed. As to the upside, a monthly open and close above 2.0132 will eliminate any downside risk as prices will once again look to target the November 1, 2007 high at 2.1160 and beyond.
Summary: The medium trend is most crucial at this juncture, as the fall from the March 9 high at 2.0397 remains active as risk for further move lower will continue until prices can close above 1.9234 while 1.8512 holds.
The US Dollar continues to carve out broad gains as the USD strength is evident throughout all USD pairs. As to the weak currency, GBP remains broadly weak as the US Dollar, Euro, CHF and JPY have all made gains against the GBP today. The USDHF reached a high thus far in the session of 1.0006, just 6 pips shy of our forecast sited in our August 6 European session outlook. For the session ahead, our focus will be on the USD pairs as all USD pairs could see an extension of the current intra day moves already witnessed today.
EURUSD’s intra day fall from yesterday’s 1.4950 high has reached a low of 1.4698 as of this writing, just a few pips shy of our 1.4671 previously sited target. Look for the EURUSD to hold under near term resistance at 1.4778, as any failure to sustain above this level will favor further downside risk. The objective remains 1.4358, as this represents the 38.2% of the rise from the November 2005 low at 1.1642 and the recent July 15 high at 1.6037. The current fall from 1.6037 will remain active until prices close on a daily basis above 1.5209 while prices hold above today’s low at 1.4698. However, the move lower witnessed in the EURUSD in recent days is just the initial impulsive wave to the downside, as a corrective wave to the upside will occur at some point, with another downside attempt to follow.
As to our results, the week remains positive as does the month at hand, with 82 winning trade days out of the last 86 trade days and 15 out of the last 16 weeks positive. We will continue our efforts to improve the delivery of our trading recommendations and look forward to the opportunities as they unfold in the months ahead. Please look for our special FX update which we will have published during the upcoming weekend.
Earlier in the week our weekly outlook favored a continuation of the move lower in EURUSD with 1.4969 sited as a key level, with a sustained break below this level risk will favor continued downside risk. Yesterday saw the pair test 1.4981 which is the 61.8% of this weeks range, so, intraday, we continue to view this level as key to any upside potential, with a sustained break targeting 1.4994 followed by 1.5083. Look for a 30 minute close above 1.4930 to support a move to the upside for a retest of yesterday’s high. However, the medium term trend remains down as only a daily close above 1.5282 will take the pressure of the downside risk and confirm the fall from 1.6037 is complete at 1.4816, with further consolidation within a 1.5282-1.5427 zone before another attempt to the downside. Intraday, the EURUSD and most of the other USD pairs remain in a consolidation pattern resulting in choppy price action. As to our outlook for today, we see potential for an extension to the upside with JPY pairs and will look for opportunities here, while USDCAD is attempting to establish an intraday trend favoring further move lower. Overall, the present intraday market conditions have a higher than normal risk present as we will move forward with caution until we see better opportunities unfold. We will have more updates later.
No change in the intraday outlook for EURUSD, AUDUSD, USDCHF and USDCAD, as all remain in their current consolidation pattern with the little prospect for intraday trade opportunity. As to GBPUSD, our heads are in our laps;our system confirmed a sell at the 13:00 GMT close at 1.8748, and of our trade criteria was met except the risk:reward. GBPUSD had recent been as high as 1.8798 30 minutes prior to our confirmation, so, the stop loss requirement would have been above that level and added to that the fact that GBPUSD had already moved 3 big figures on the day, we decided not to send out the alert and stand aside. So, at this writing, we do not see any low risk intraday trade opportunities. We wil have more updates later.
Intraday charts on EURUSD, USDCHF, AUDUSD, and USDCAD have all turned consolidative and unlikely to confirm intraday trade opportunties. GBPUSD is very offered but already moved well beyond it’s average daily range as our system confirmed selling GBPUSD at 1.8748 at 13:00 GMT, but the risk:reward ratios on the pair do not meet our criteria, therefore, we were unable to send an alert and execute this trade. We are seeing some potential JPY buying and will look for EURJPY, AUDJPY and CHFJPY selling opportunities during the session ahead, so we will look for confirmation to sell one of these pairs.
Our outlook remains unchanged for GBP as the current move on the GBP is definitely impulsive favoring further GBP weakness into the weeks ahead. GBPUSD next target is the 61.8% of the 1.7048-2.1160 rise at 1.8619, as this has been our objective since prices closed below 1.9589 (38.2%) back in June. As to EURUSD, the broad trend from the November 2005 low at 1.1642 remains active and ONLY a weekly open and close below 1.4358 will confirm the rise from 1.1642 is complete at 1.6037. However, the medium term trend and as of this writing, the intraday trend remain down on the EURUSD, as only a daily close above 1.5282 will complete the fall from 1.6037 at 1.4816 (yesterdays low).
Additionally, there is mounting evidence that we may be in the very early stages of a broad USD rally which will continue beyond 2009. We discussed this possibility in yesterday’s 8:00 GMT blog.
For the session ahead, we favor selling GBP against anything, as we have have several GBP pairs which we are evaluating as well as selling EURUSD. Bid, we look for buying USDCHF, EURGBP and USDCAD. So, EURUSD, GBPUSD, EURGBP, GBPCHF, USDCHF, and USDCAD all have well defined intraday trends which also line up with the current medium term trends, as we will look for trade opportunities with these pairs during the session ahead, once confirmed.
We have closed our GBPUSD trade ahead of key UK data in that information we received just moments ahead of the BOE inflation report suggested GBPUSD would move lower on the release and thus our buy confirmation would be at risk. We will stand aside for now.
The EURUSD is currently in a corrective move up as prices just tested the 61.8% of the recent 1.5080-1.4816 active wave at 1.4981. We missed an earlier intraday buy confirmation at 1.4944 but were fortunate to see another confirmation and entered a small intraday long at the close of the 15 minute 7:00 GMT candle at 7:15 GMT. We covered at 1.5479 anticipating initial offers ahead of the 61.8 of the current active wave. The medium term trend remains to the downside for EURUSD as we view rallies as only corrections. We will have more updates throughout the session and later today.
EURUSD continues to move lower with the 38.2% of the 1.1642-1.6037 rise at 1.4358 as the next objective. Currently the pair trades at 1.4896 which is the exact level EURUSD was trading at when on Feb. 26, 2008 Ben Bernake had testified before the Congressional Committee on US Economic Policy, as on that day Bernake’s comments regarding the weak US dollar sent the EURUSD soaring to new all time highs and in the process dragging crude oil and commodity prices along the way. It appears now that the markets have returned to a state of normalcy with the US dollar higher and commodity prices much lower. Now, back to the EURUSD, the fall from 1.6037 has reached a low of 1.4816 as of this writing, with any sustained move back above 1.5282 confirming the fall from 1.6037 is complete at today’s 1.4816 low. However, any move up should be considered corrective and not impulsive, as the active medium term trend remains down. It is possible that the recent move lower in the EURUSD is only the initial wave of a multi-month move to the downside for the EURUSD, with the initial target in the months ahead at 1.3054 ( 38.2% of 0.8227-1.6037). So, assuming that the fall from 1.6037 is Wave 1, then Wave 2 up should not sustain above 1.5427 which is the 61.8% of the 1.6037-1.4816 fall, with Wave 3 down to follow targeting 1.4358 initially and well beyond. So, nothing yet confirmed, but something to consider. But what we do know is the US dollar has made broad gains in recent weeks and we should expect a correction soon. Continue to use rallies as selling opportunities while to the upside a sustained move back above 1.5776 will see further rise towards 1.5844 and beyond. But for now, the trend remains to the downside with 1.4358 as the objective.
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