Asian Open / European Preview
11.21.2011 10:51 PM EDT
Good Morning Fellow Traders!
USDX spiked higher at London Open after prolonged consolidation during the Asian Session. USDX structure from Nov 16 high (78.46) looks corrective to the downside where it is showing 3 waves down to 77.56 and then 3 waves up to a marginal new high (78.49). Looking at USDX structure alone, a case can be made that USDX is either in a triangle, FLAT or an ending diagonal structure. So even though, USDX looks tired, we suspect move up is not complete yet and there migth be at least 1 more high in store before a larger correction. Moreover, recovery in risky from NY session low is showing a corrective structure which also supports the case for at least 1 more high in USDX. But, like we mentioned before, USDX rally looks very exhausted and we maitain our view that a healthy correction is needed to regain momentum. Starting from Oxt 27 low, we believe USDX can be in 3 waves WXY or nesting to the upside. If W-X-Y move from Oct 27 low is complete, USDX will correct the entire 74.73 – 78.49 rally before the next leg up .
EURUSD daily wave count shows the possibility of wave Y of D (in the weekly triangle pattern) in progress with an eventual target around 1.24-1.25. Having said that, if the move is unfolding as a series of 3 waves , then we won’t be surprised to see another short squeeze rally before the next leg of the downtrend. Short-term structure is very similar to USDX where a Flat, Ending Diagonal or a Triangle could be in place. If a triangle or ED is in place, 1.3615 should remain intact until 1.3420 is broken to the downside and in case of a flat, EURUSD could reach as high as 1.3670 (before taking out 1.3420). We think 1.3670 could provide a nice shorting opportunity. EURGBP wave count shows it to be in wave c of (b) from 8829, 50% fib retracemen @ 8657 should be strong resistance and an attractive level to short. A daily close above 61.8 (8698) which also coincides with daily 200 EMA will dent the beairsh outlook to some extent. GBPUSD drop from 1.5887 looks incomplete and wave structure is calling for at least 2 more low to complete 5 wave drop. AUDUSD wave structure is also calling for 1 more low to complete a 5 wave drop from 1.0106 high. 9775 could be a level of interest.
SPX500 extended weakness today and reached an intra-day low of 1183 before making a recovery before the close. We are presenting 2 wave counts, bearish and bullish. Under both scenarios we are expecing the Index to rally in either wave Y of II or wave c of 2 (assuming 1292 was the top of wave II). We would like to highlight that SPX500 today found the low at parallel channel support and it’s usually wave iii of 3 which would break the channel. Until, that channel breaks we have to respect the possiblity of a move higher first. It is also possible that wave 2 complete at 1270 and wave i of 3 is now underway. If this interpretation is correct, we would still expect wave ii of 3 to close the gap around 1216 level at minimum before wave iii of 3 down commences. Oil sell off continued today but price had recovered a lot before the close and ended the day slightly lower. We believe Oil is either nesting to the downside or is dropping in a corrective fashion (series of 3 waves). Make no mistake, even if the move down doesn’t turn out to be a nest, weakness could still extend in the form of 3 waves. A test of broken daily trend line would prove a good low risk shorting opportunity. Gold sell off also continued today as we mentioned in our weekend preview and update.
Keeping in mind wave structures in different risk assets, we believe USDX stregth is not over yet and even though the rally looks exhausted, we could see new highs in USDX first before a pullback
Trade Safe & Good Luck !
Elliott Wave Forecast Editorial Team