FOREX: US Dollar Expected to weaken

Euro Dollar against US Dollar (EUR/USD)

My expectations for this currency pair are very much influenced by my interpretation of market structure. In Elliott Wave terms, the move down that began on July 15th/08, with the most recent low on Sept. 11/08, looks very much like an “A” wave.

If that is so, “A” waves must be followed by “B” waves. “B” waves are often erratic and complex. It is highly unlikely that the high of July 15 will come into play as a target in this market any time soon.

If the Sept. 11th low holds and if the immediate resistance (R1 on the chart) is broken to the upside, the maximum upside target for this week will likely be in the resistance zone between 1.4950 and 1.5050.

At time of writing, resistance at R1 is holding, but will likely be broken soon, after which the R2 zone will come into view as a near-term price target.


Daily EUR/USD price chart as at 18 September 2008 using NextVIEW Advisor

TECHNICALS

NextView RSI – rising but not yet in positive territory.
Bollinger Bands – these bands are, for the moment, constricting. This implies sideways movement is probable.

R1 – currently at the rising trend line around 1.4400.
R2 – between 1.4950 – 1.5050. When R1 is broken to the upside, this resistance zone will become a price target for Euro bulls.
S1 – a fairly strong support level, which if broken to the downside will target the 1.3600 area, an unlikely scenario at this time.


US Dollar against Chinese Yuan (USD/CNY)

I’m a little surprised that this pair hasn’t moved a little faster to the down side. I’ve been anticipating such a move for two or three weeks already.

This market has already been in a sideways trading range for two months, and the trading range has tightened even more recently.

A break above R1 will target R2 or slightly higher.
A break below S1 will initially target 6.7794, 6.7400, and then lower.


Daily USD/CNY price chart as at 18 September 2008 using NextVIEW Advisor

TECHNICALS

MACD – this indicator is in negative territory, but even more importantly is relflecting the sideways price action of the market.

Commentary and analysis by Don Schellenberg