Long Term Report - EURUSD

MONTHLY CHART

Points to note on the monthly chart:

• The shorter yellow cycle is finding a high
• The green and red cycles are rising while the blue cycle is declining
• If considering the next larger cycle to the red cycle, this is now declining having peaked at the 0.8225 low
• The possible triangle high is around 1.3400
• FXS-RSI is close to being overbought
• Price is above the Pivot Cloud but has not broken above cleanly

The apparent overriding impression gained from the monthly chart is one of price finding a peak. We do need to be a little careful of this view but the break levels for a move higher are quite clear being at the possible triangle high around 1.3400 and then the price peak at 1.3666. If these break then a move towards the 1.5231 peak generated from a synthetic Euro in September 1992 would not be impossible and would actually make the chart look quite symmetrical around the major cycle low at 0.8225. Indeed, this scenario would call for strength to last for the next 9-15 months at least.

If we consider this bullish interpretation then it would perhaps suggest that the move to the original peak at 1.5231 represented Wave –i- and the correction to 0.8225 was Wave –ii-. In this part of the wave structure one would expect a move back to the 1.5231 area once again in Wave –a- of Wave –iii-.

However, let us also consider the initial impression of a cycle high being due. This certainly looks to be the case from the yellow cycle and has the support of the declining blue cycle although the red cycle is still rising. We need to watch the 1.3400-1.3666 area closely and if this forms a peak then the larger triangle is still possible.

WEEKLY CHART

Points to note on the weekly chart:

• The blue and green cycles are declining and should find a low around March-April next year
• The yellow cycle should come to a high within a few weeks
• The red cycle is still rising
• There is potential for FXS-RSI to form a bearish divergence
• Price is breaking above the Pivot Cloud
• There is pivot support around 1.2456-83 – though this is some way lower than current price
• A 76.4% retracement of the 1.3666 -> 1.1640 decline rests at 1.3188

In the weekly chart we get a greater sense that a cycle high is due with the green and blue cycles quite decisively declining while a bearish divergence is quite possibly in the making but much too early to confirm. We can note the 76.4% retracement at 1.3188.

It is from this chart we can begin to get a better feel of the differences in the two large scenarios described in the monthly chart. If we are seeing a larger triangle then it would be preferable for the 1.3400 area to cap while a longer term bullish structure would probably allow a mild breach of this resistance to the 1.3450-1.3666 area in Wave –a- of Wave –iii-.

Either way a price high is expected over the next few weeks and from there the indications are for a decline from that peak by around 50% of the rally from 1.1640 to the expected peak. If the peak is around 1.3450 then the correction could reach as low as 1.2550 which is just above the area of the prior Wave iv and this should be complete by March–April next year.

DAILY CHART

Points to note on the daily chart:

• Green and blue cycles are rising
• The yellow and red cycles have just peaked
• The next time all four cycles meet a low will be around the April time frame
• FXS-RSI is overbought
• Price is rising strongly above the Pivot Cloud
• From the wave count we are either seeing a triple three higher or a five wave pattern

If we measure projections for the possible Wave (or) v we can generate:

If Wave v extends by 61.8% then a target of 1.3309 is implied
If Wave v extends by 66.7% then a target of 1.3374 is implied
If Wave v extends by 76.4% then a target of 1.3504 is implied

If we look at the 3-wave structure from 1.2483 we can derive targets for Wave C:

A Wave C extension of 138.2% implies a target of 1.3340
A Wave C extension of 161.8% implies a target of 1.3440

The implication is for the rally to continue to the 1.3340-1.3440 range (max 1.3504) from where a pullback can be expected which we will then tentatively target the 1.2550 area.

SUMMARY

In summary of all three charts the strong implication of the structure suggests that while we can expect to see additional gains in the short to medium term, we are actually quite close to a major peak which I estimate will be in the region of the 1.3340-1.3504 area and should occur by the end of this year approximately.

The interesting feature is that the cycles are all in alignment to see a decline in the Euro from the expected peak until the April 2007 timeframe approximately.

In terms of the larger structure we are seeing there are two clear possibilities – the first keeping in line with the previous long term reports which suggested the possibility of a multi-year triangle pattern within which we are seeing a particularly deep correction in the decline from 1.3666 to 1.1640.

The second scenario is much more bullish in the multi-year timeframe although the near term would look for a coming peak in the same area around 1.3340-1.3504 followed by a pullback in Wave b of Wave iii higher and once the Wave b is complete which is estimated to be in the 1.2550 area, the next larger move will be higher in Wave c of Wave iii.

Clearly I shall be watching for where the current rally will terminate and from there we need navigate the correction lower into April of next year

Global Forex Trading
http://www.gftforex.com

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