Friday, 17 September 2010

14:04 BST Dollar Update

The dollar failed to make 5 waves up following my last post (which you can read here) and continued its decline which, on the bullish count, is wave (ii) within an intermediate wave (3) up. 

I mentioned in that last post the risk that the low I had labelled as wave (ii) could be only wave [A] of y of (ii), which would mean that following a rally for [B], there would be a further decline in wave [C] to nearer the 78.6% retracement level of wave (i). Well we got the further decline and it did just about reach the 78.6% retracement level at today's low of 80.865. 

Here's how I'm labelling it for the bullish count:

Dollar 60 min:

We've now rallied from that low in what looks more like an impulse than the rally we were seeing at the time of my last post. However, that's no guarantee of a bottom since if the bearish counts are playing out, such a rally could simply be part of a corrective move.

So, what we need to see is a 3 wave pullback once this move up completes. (assuming it does so in 5 clear waves). The pullback must stay above the low at 80.865, otherwise the labelling is wrong.

Assuming that happens, we then need to see an even more decisive push up in 5 waves followed by a 3 wave pullback that stays above the high of the first rally leg and then another 5 wave rally. In other words, of course, we need to see a 5-3-5-3-5 larger degree rally. It would be preferable if we could take out the high at 82.987 in this rally, but really we can only take things one step at a time and monitor each rally for 5 waves and each pullback for 3 waves.

So, I'd be looking at a 3 wave move down that stays above 80.865 and a good reversal signal as a sign of another leg up to come, but I'd want to be out if we then drop below either the low of the pullback, or the low at 80.865. Given that continuing downside in wave (ii), or in one of the more bearish counts (see the dollar page) remains possible, its no time to assume that an impulsive looking rally means a bottom has been put in.