Tuesday, 5 October 2010

12:31 BST - Dollar Update

The dollar made a new low this morning. I was expecting a new low as you can see from the update I did on Saturday, but because we retraced up quite deeply first, I've relabelled the charts to show the wave (iii) of [v] low at Friday's low (instead of that low being wave iii of (v)), with the retracement up being wave (iv) rather than wave iv of (v):

Dollar 60 min:

Here's a closer look from what I now have as the wave iv of (iii) high at 79.020:

Dollar 5 min:

As you can see, we may be near to completing wave (v) down, provided it doesn't extend. It looks to me like one more low is required to complete 5 waves down from the wave (iv) high at 78.687. If that's right, the monitoring process for a potential impulse move up will resume then.  If we fail to make a new low but instead rally above 78.365, it'll start to suggest that we may have bottomed at the current low of 77.975.

However, be aware that the 78.6% retracement level is at about 77.300 and price may well be headed there. Having said that, currently, wave C is about .618 x wave A and also, wave C is about 1.618 x wave B. That would be an intersting relationship for an end to wave C. 

As I mentioned on Saturday, to have any confidence that the decline may be over, we need to see a 5 wave rally, followed by a 3 wave decline that stays above the starting point of the rally. We then need a further 5 wave rally followed by a pullback that stays above the high of the first 5 wave leg up - that's still something that we haven't seen.

You can see on the 5 min chart how we failed to see that following Friday's low - the first 5 waves up which could have been the first wave in an impulse is the leg I have labelled as [A] of a of (iv). A 3 wave retracement to where I have [B] of a of (iv) followed. We then saw another 5 wave rally to where I have [C] of a of (iv). The crucial thing at this stage for an impulse was for the subsquent retracement to stay above the high at [A], which it failed to do. That was the first sign that the possibility that I had mentioned on Saturday that Friday's low was the end of wave (v) was unlikely.

The next sign of this was when we rallied above the high at a, it was possible we were in a one-two-(one)-(two)-(three) up. However, taking out the high at a on the next retracement ruled that out and increased the likelihood of a new low.

So, as mentioned above, I'm expecting another low below 77.975 to complete wave (v) of [v] and C. Then I'll resume the process described on Saturday and above, of looking for signs of an impulse move up, beginning with a 5 wave rally from the new low and a 3 wave pullback.

If we rally now without making a new low and take out the low at 78.365, especially if it occurs in a clear 5 wave move up, I'll start to think we have already seen the end of wave (v). I would then want to see a quick move to take out the highs at 78.687 and 79.020.