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Thursday, 7 October 2010

The Big Picture on USD

SPX is testing an important declining trendline from the 2007 highs and looking at many other instruments on forex and commodities particularly, I'm doubtful about that resistance trendline holding. Here's the SPX daily chart showing that declining resistance trendline as well as the main rising channel from March 2009. Shorter term my 60min chart from yesterday morning still covers the short term rising channel situation:

Longer term the big picture here in my view is mainly about USD. If USD crashes to a new low below the 2008 low then the picture for equities looks very bullish, particularly in the emerging and commodities markets where major bull markets are in full swing. The technical picture on USD is looking increasingly grim, but it isn't yet looking desperate. Looking at the ten year USD chart I'm seeing two major trendlines that are the most important for USD at the moment.

The first trendline is the declining resistance trendline from the 2006 high, and the USD rally reversed there. If USD were to bounce back, that would be key overhead resistance. The second trendline is the one that mainly interests us here though, and that is the rising support trendline from the 2008 low. The next test of that support trendline will be in the 75.8 area, and with USD at 77.64 as I write this, we may not be waiting long to see it. Here it is on the USD weekly chart:

Of the three rising resistance trendlines that I posted for EURUSD yesterday morning, the first broke up yesterday, the second broke overnight and on a break of 1.40 my next target is in the 1.42 area. I read yesterday that Goldman Sachs have raised their forecast for EURUSD to 1.70 now, and while their record for these forecasts is spotty at best, I can see where they're coming from on the long term weekly chart. You can see on this that we have a twelve year rising channel on EURUSD, and the upper trendline is in the 1.70 area.

Shorter term though there is significant declining resistance in the 1.455 area, and that area is also the target for the broadening descending wedge formed between November last year and June this year. I think we'll see EURUSD test that declining resistance trendline, and that should be at about the same time USD tests key rising support. On a break up through that on EURUSD, I think the Goldman Sachs target would look doable:

On the shorter term charts I've been watching the Yen break up yesterday, and another USD currency pair that has made a decisive break up is CADUSD, where a four month rectangle with a target at 103.5 has now broken up. There is also a two year channel on CADUSD with a target that would take it over the 2008 high at 1.10:

AUDUSD took out the 2008 high yesterday and my next target is a significant rising trendline in the 101 area. The target for the broken broadening formation is at 107 of course:

The main thing I'm waiting for now though is that USD support test. If USD bounces hard there then the overall technical picture would change a lot, and we're close enough to it now that it is the obvious target for the current wave down. Short term that suggests that we're now unlikely to see a significant reversal until we reach it and that puts my key EURUSD target over the next few weeks at 1.455.

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