Short term patterns indicate that the US dollar is likely to weaken on balance for the rest of the week.

We wrote yesterday that “the rally from 1.4631 is in 3 waves as is the decline from 1.4908.  These waves are most likely waves A and B of either a flat or triangle (yes, wave B can come under the origin of A in a triangle).  The path for the next few days should be higher in wave C of either the triangle or flat.”  We stand by this outlook and expect a push into 1.4850 by week’s end.  Very short term, a dip below 1.4666 is possible but support should be strong at 1.4635/40.    

Intraday price action remains wild but at the end of the day the USDJPY is little changed.  Still, the pair simply has the ‘look’ of a top (head and shoulders).  Only a break out of the 108-110.50 range is going to clarify directionality.  It is worth mentioning though that 3 month volatility is at its lowest since the last late December.  Low volatility historically indicates a high probability that a sharp drop is around the corner.

Despite the drop below1.8325, risk is to the upside (double divergence with 60 min RSI).  The rally from 1.8512 and subsequent drop from 1.8793 could be the first two waves of a flat or a triangle.  This would present range trading opportunities for the next few weeks between roughly 1.85 and 1.87.  We would like to see a rally above 1.85 to bolster the range outlook.

The USDCHF is in the same position as the EURUSD (but as the inverse).  The recent 3 wave movements are either the first 2 legs of a triangle or flat.  The 5 wave drop from 1.1086 confirms that the near term direction is down as long as price is below 1.1086.  We expect a test of 1.0850 by the end of the week.

We’ve altered the count slightly from yesterday and are much more confident in this short term bearish outlook.  Expectations are for a drop below 1.0411 to complete a complex corrective decline (W-X-Y-X-Z) from 1.0726.  The 61.8% of .9974-1.0726 at 1.0261 is an area that would likely produce a bottom that leads to a rally through 1.0726.  As long as price is below 1.0561, maintain a bearish bias for the test of 1.0250/1.03.

We wrote yesterday that “it is also possible that a temporary low is in place at .8493 as the drop from .8813 could be a leg of a triangle or flat (similar to the EUR, GBP, and CHF).  The AUDUSD has held above .8493, increasing the odds that we are correct in our call for a triangle or flat (and strength from above .8493).  We expect a test of .8688 by the end of the week. 

There is no change to the Kiwi analysis.  “The NZDUSD rally from .6824 and decline from .7215 are either waves A and B of a flat or triangle.  The short term direction is most likely up until at least .71 in wave C of a triangle.  In the case of a flat, price would exceed .7215 before rolling over.”

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals  every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week.  He is also the author of Sentiment in the Forex Market.