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Friday, 26 November 2010

Dollar Bull

We've seen an impressive move up on USD this week. Most impressive however has been the overnight break back up through the H&S neckline into what would have been wave 1 if this had been a wave 4 move. Clearly it wasn't a wave 4 move and the upside looks wide open for USD now:


Short term we look due for a counter-trend bounce on EURUSD back to declining resistance but it looks as though EURUSD may not have got the memo about that as it is currently breaking down through support for the current falling wedge, having already broken down through rising support from the May low overnight:


GBPUSD also looks due for a counter-trend bounce here but if EURUSD breaks down through support then GBPUSD should follow:


Much depends on USD today. If the support trendline on EURUSD particularly fails and there is no counter-trend bounce, then prospects for equities look bleak today, and I'd expect rising support there to be broken as well. There is decent rising support established on both ES and NQ, with three touches on each support trendline. Rising support on ES is in the 1177-8 area on an established triangle:



On NQ established support is in the 2116 - 20 area within a rising channel:


Longer term the current move on USD is, if not necessarily the end of the bull move on equities in August, very probably the beginning of the end of it. I've been considering the possibility that we would see a counter-trend bounce on EURUSD here targeting declining resistance in the 1.35 to 1.36 area, and that at the same time we might make weak new highs on equities with negative divergence on RSI, but to do that we would obviously have to have a bounce on EURUSD, which is really looking incredibly weak. I have an alternative support trendline in the 1.3075 area and that might provide support. I'll be looking for a bounce there with corresponding bounces on ES and NQ at support. If the current wave down on EURUSD is as long as the first wave though, that would target 1.295 and obviously if this is a third wave down, it could well be longer. Bottom line is that I'm expecting a retracement for USD at 83.5 if we get there on this wave up, and I think that's possible.

If USD does make 83.5 on this wave up, I'd be expecting short-term rising support on ES and NQ to break so we'll see. Putting the SPX bull case here is Pug, who has left his last EOD post open for public viewing. Well worth a read here.

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