Dollar Outlook (Short Term) Mixed to Begin 2009

• euro / dollar potential support at 1.35 and 1.33
• Britsh Pound tests multi-year lows
• USDCAD bullish above 1.1459
• NZDUSD expected to exceed .6090 soon

EUR/USD

First, let's review what has occurred over the past several months. The decline from the July 2008 high (1.6040) can be counted as a 5 wave drop (wave 5 is truncated). 5 waves down at this degree of trend indicate that the long term trend has changed and that a multi-year bear is underway. The surge through 1.47 fits as a larger second wave (second waves tend to be sharp and retrace a significant amount of first waves). This places us in wave 3 down from 1.4723 (complex corrections are always a possibility…in this case that would mean a rally above 1.4723 before the top is in). Short term potential resistance is in the 1.3650-1.3715 zone. Potential support is at 1.3490 and 1.33. Staying below 1.4368 keeps the short term bear trend intact.

USD/JPY

Staying below 100.60 keeps the long term bear trend intact. There is potential resistance in the 95.20/70 zone; this is the 61.8% of the decline from 100.60 and the March 2008 low. The December 8 high at 93.93 may also serve as resistance.

GBP/USD

The British Pound is testing multi-year lows. The count above suggests that the GBPUSD will soon enter a 4th wave that should consume at least a few months. Divergence with RSI on the daily chart also warns of a pending rally.

USD/CHF

To review the bigger picture…a 5 wave advance from .9634 is viewed as the first bull leg in a multi-year uptrend. The sharp drop from 1.23 is the bulk of the correction (wave A) in terms of price but not time. The rally from .9634 took 9 months and the corrective decline has entered the beginning of its 3rd month. The USDCHF may enter into a sloppy range in this B wave before testing potential resistance from Fibonacci near 1.13 and 1.15.

USD/CAD

It is still possible that the USDCAD drops below 1.1459 in order to complete a larger 4th wave. It is also possible that a smaller second wave is complete or nearly so at 1.1812. Staying above 1.1459 keeps a very bullish count on track in which the USDCAD accelerates higher in wave iii of 5.

AUD/USD

The AUDUSD has satisfied minimum bullish expectations having exceeded .7022. The 3 wave rally from .60 may be just the first of a string of 3 wave moves that will form wave (2) within the long term decline that began at .9856. A choppy range may form as an X wave drifts lower from here. However, staying above .6753 keeps alive the possibility that the AUDUSD rally accelerates towards Fibonacci resistance, which begins at .7256.

NZD/USD

Expectations are for a rally through .6090 while the NZDUSD remains above .5656. Fibonacci at .6183 combined with congestion in that area is likely resistance.

DailyFX

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