Asian Open / European Preview
11.14.2011 10:12 PM EDT
Good Morning Fellow Traders!
USDX found strong support just above previous swing low (76.51) and rallied strongly posting big gains across the board. FX, Commodities & Equities all ended the day lower against USDX. As we have been mentioning for a while that Oil was running into strong resistance and nearin an important top. Oil futures contract spiked to 99.48 (61.8 fib on the daily chart) at the open on Sunday evening and quickly turned lower giving back all its spike gains. It reached an intra-day low of 97.19 and ended the day at 98.20. We suspect a significant top has been put in place (at least in the short term) and we should see Oil weakness in the coming session and strong support between 94.50 and 95.20 should be tested.
We are still facing the same dilemma that we were earlier in the day regarding the wave counts in USDX & SPX500. We said in our NY open preview that SPX500 could either be in “wave e of a bullish B wave triangle” or “wave d of a bearish B wave triangle”. E-mini S&P futures found support at 50% fib of the last leg up from 1218.25 – 1270.75. If a bullish B wave triangle is in play, it could well be complete with the latest dip or we might see another leg down (after a small rally tomorrow) to 61.8 or even 76.4 fib of 1218.25 – 1270.75 rally. Price must hold above 1218.25 low for bullish B wave triangle to remain in play. If this interpreation is correct, strong resistance at 1320 could be challenged before the Index forms an important top. If we do get another leg down to hold above 1218.25 as we mentioned above , and the subsequent reaction is corrective (not impulsive), we will then favor the bearish B wave triangle and expect price to thrust lower as long as it stays below 1270.75
We presented 3 possible wave counts in EURUSD during the NY update. There is no change in the outlook at the moment. Double zig-zag from 1.4245 (with wave c of Y underway) and bearish B wave running triangle (with wave e still to come) will have the same out come and we are favoring this scenario as we believe USDX will remain supported and will be able to avoid an aggressive (wave C type) sell off in the coming sessions due to weakness in Oil that we are expecting. To reiterate, if this interpretation is correct, 1,3815 high should remain intact before 1.3482 low is broken to the downside. We are expecting a bounce in EURUSD tomorrow to 50-61.8 fib of today’s decline BUT there is possibility of another minor low to 1.3560-70 area before the bounce happens. If that bounce is corrective, it will be provide a good selling opportunity. GBPUSD (Cable) is either in a bearish B wave running triangle or is about to complete wave (a) of ((y)) with 5 waves down from 1.6092. Either way, we expect a bounce in this pair before 1 more leg down to complete wave B of (E) of triangle. (Refer to the weekly chart). ((y)) = ((w)) target is @ 1.5795 and could be seen in the next leg down.
We see a lot of possible triangle structures in the market. AUDUSD & NZDUSD wave structures could also be seen as either running triangles or complex double zig-zag moves. Either way, if bearish B wave triangle count plays out in ES_F, we expect more downside in these pairs in the coming sessions before a medium term low is reached. 0.9915 (61.8% fib of last leg up) and 0.7654 (76.4% fib of last leg up) could be tested. USDCAD appears to have completed 5 waves up from 1.0071 – 1.0193 and though we might see a correction of this rally tomorrow, we expect more upside in the coming sessions and think 1.0265 high is at risk of getting taken out.
We continue to favor the downside in Gold (XAUUSD) against 1795 and 1803.45 and our minimum target is 1730 (C = A). However, an erratic decline to hold above 1750-58 support over the next few sessions would mean Gold is consolidating in a triangle before making another attempt at 1830 (C = A from 1680).
To conclude, we are expecting a pullback in USDX in today’s trading (could see a minor new high first). USDX correction could get deeper and even reach below yesterday’s low but we are favoring a shallow correction to hold above yesterday’s low and another leg up based on our view in Oil.
Trade Safe & Good Luck !
Elliott Wave Forecast Editorial Team