Tuesday, 9 November 2010

8:25 GMT - Dollar Update

Last time I posted the daily chart of the dollar, it looked likely that there would be more downside before we could really start thinking that a low may be in on the overall bullish count (see the post on 30 October 2010).

We did get the new low that was anticipated and this has resulted in some nice looking bullish divergences on the indicators in the daily chart:

Dollar Daily:

As you can see, as price made a new low, the indicators shown all made higher lows. This suggests that there is a good chance that we may have seen a low of some sort.

However, despite the dollar's comeback over the last couple of days, there's still alot it has to do to prove that a low is in.

As you can see from the daily chart, we're back into the yellow resistance area I've highlighted in previous posts of this chart. We need to break above it and turn that area into support in order for the bullish case to have any prospect (though doing so wouldn't preclude more downside, so wouldn't be conclusive that the dollar has bottomed). If that can be achieved, the next thing to look for would be a break out above the downward sloping price channel that has formed during this decline.

As a follow through to the bullish divergences in the indicators, we now need them also to get to bullish levels along with a good move up in price: the RSI above 50 and up to the 66.67 level; the MACD above the zero line and the stochastic up to the 80 area. I don't want to see this happen with price only moving sideways - that, in my view, would be a warning of potentially more downside to come.

Here's a 95 min chart showing the move down from the high labelled B on the daily:

Dollar 95 min:

The red horizontal lines show the area of resistance highlighted in yellow on the daily chart. 

The high at 78.273 is key to the bullish case. It has to be broken above on the bullish case. However, doing so wouldn't mean that the bullish case must be the one playing out. If the next significant pullback were to stay above the low at 75.631, we might then have more reason to believe that a bottom has been put in.

Here's a 15 min chart with a potential wave count for an impulse off the low at 75.631:

Dollar 15 min:

It looks like we may still be in wave (5) of [1], but a significant break below the green channel would suggest that its over and we'd then be looking to see a three wave pullback that stays above 75.631 if the bullish case is playing out.

So, while we're above 75.631, the bullish case has a chance, but we need to break above 78.273 if serious consideration is to be given to the possibility that we've bottomed on this count. While we're below 78.273, further downside remains the higher odds option.

You can see the bullish and bearish counts I'm watching on the updated dollar page.