Thursday, 9 September 2010

9:30 BST - Dollar Update

In my last post on the dollar, it appeared that we may have seen the start of wave (iii) up. In fact, the dollar put in a bit more upside from there with what counts quite well as a 3rd wave extension. It then appears to have completed 5 waves up from the 81.876  wave (ii) low, at 82.923. 

Here's a continuation of the 60 min chart from my last post, but zooming in on what I've labelled as a complete wave (ii) correction and the rally from there (you can see a chart of the wider view in my last post):

Dollar 60 min:

I've labelled a [1]-[2] off the wave (ii) low, but wave [2] may not be finished - at the moment, we only have 3 waves up from the wave [2] low. The current decline from the high labelled 1 would be wave 2 (of (3) of [3]) and must stay above the wave (2) low at 82.475 otherwise, the probability will be that wave [2] is continuing down. It retraced 50% of wave [1] at the 82.383 low.  The 61.8% retrace is at about 82.271 and the 78.6% retrace is at about 82.094.

Also, its not conclusive that we've seen the wave (ii) low. We retraced about 50% of wave (i) in the decline from 83.522, buts is perfectly possible that wave (ii) could still be in progress and will go on to make a deeper retracement to the 61.8% or 78.6% levels.

I think it would be more reassuring for long positions if we were to explode up above the correction channel that largely contained wave (ii) (see the red channel lines) and above the green base channel that I've tentatively put in for this rally off the wave (ii) low - if this is an impulse wave it ought to have no difficulty breaking above the upper line of the green channel and not really looking back after that.

Until then, downside risk in a continuing wave (ii) (or the other bearish possibilities outlined on the dollar page) remains. So, the best strategy to minimise the risk is to step aside from long positions if either of the two  pivot lows at 82.475 and 82.383 are taken out - the choice depends on individual risk tolerance.