Possible scenarios of USD strengthening (EWA of CHF, EUR, GBP, JPY, CAD)

Introduction

In Annual-06 the reference point for the current wave picture adjustment and possible correction of further forecast (the second half of October 2006) was specified with the help of the key pulse points method. By that time supposed wave (B) or (X) in the shape of some “three” pattern completion was expected with subsequent change of the direction of the global price movement in favor of the dollar.

Approximately five weeks left before the projected reference point, the closer we are the more nervous and unpredictable short-term price movement of the majors becomes. Unfortunately, at such periods of the global trend break wave counting becomes multi-variant that makes it difficult to analyze current situation and to forecast further movement of the currencies.

The most urgent question now is when the global trend in favor of the dollar reverses or it has already happened. Survey wave counting of the described dollar pairs signals that for three main pairs (EUR, GBP, CAD) global trend has not reversed yet, though, probably, it will do it soon. According to wave pictures of CHF and JPY currency pairs trend may have reversed in favor of the dollar already at the mid of May this year. Most probable wave counting of the majors (from my point of view) is given below. Let's consider it in more detail.

USD/JPY

Figure 1. Wave counting of USD/JPY on the weekly chart.

This scenario (Figure 1) was given in Monthly-0906. According to this variant final upward impulse (C) of zigzag [E] is forming. Now corrective wave 2 of (C) is supposed to be forming, it may assume the shape of the flat and complete above the key pulse point about the twentieth of October (Figure 2).

Figure 2. Wave counting of USD/JPY on the daily chart.

Supposed zigzag [b] of 2 completion is not confirmed yet (though judging by the wave pattern we may suppose it). That is why possible projection of wave 2 completion was specified by support/resistance levels and classical proportions of the flat pattern. 113.0-114.0 around 50% of fibo retracement are the preferable values for wave 2 completion.

Thus according to the main scenario the nearest USD/JPY fall is expected in the shape of the impulse or diagonal triangle approximately by 500 points within 5 weeks and only then USD strengthening is expected to continue.

At the same time according to the alternate variant wave 2 may be already completed (it is given in grey color). In this case uptrend will continue after a slight downward retracement, confirming level will not be tested.

EUR/USD

Figure 3. Wave counting of EUR/USD on the daily chart.

From the mid of May the euro is moving in the shape of the horizontal pattern, several variants of wave counting are probable. For example, according to one of them the second wave X is still forming in the shape of the horizontal triangle or another extended correction.

In Figure 3 the main scenario is given, in accordance with it wave [b]of the final zigzag Z is almost completed. As it is not confirmed yet (though it it probable judging by the wave structure) projected figures of wave Z completion are given on the basis of triple zigzag W-X-Y-X-Z waves rather than final zigzag [a]-[b]-[c] of Z waves. Though in Figure 3 it is clearly seen that with classical legs correlation of zigzag ([c] = [a]) projected value of zigzag Z completion coincides with the projected area of triple zigzag (B) or (X) completion (it is given in the chart in the shape of the red-yellow ellipse). The triple zigzag may complete above successive key pulse point around the twentieth of October.

Thus according to the main scenario the nearest EUR/USD rise is expected in the shape of the impulse or diagonal triangle approximately by 500 points within 5 weeks and only then USD strengthening is expected.

At the same time according to the alternate variant wave Z may be already completed (it is given in grey color). In this case downtrend will continue after a slight upward retracement, confirming level won't be broken.

GBP/USD

Figure 4. Wave counting of GBP/USD on the daily chart.

This article was given in Daily-070906. According to this variant the second leg [c] of zigzag Y may be almost completed (Figure 4). Currently final wave (v) of impulse [c] is forming, it may complete above the key pulse point around the twentieth of October. Projected area of possible ending of the double zigzag is given in the chart in the shape of the red-yellow ellipse.

Thus according to the main scenario the nearest GBP/USD rise is expected in the shape of the impulse or diagonal triangle approximately by 500 points within 5 weeks and only then USD strengthening is expected.

At the same time according to the alternate variant uptrend may be already completed. In this case downtrend will continue after a slight upward retracement, confirming level won't be broken.

Figure 5. Wave counting on the daily chart of GBP/USD. Alternate variant.

One of possible alternate variants is given in Figure 5. In this case uptrend is within the bounds of the triple zigzag and it is completed already.

USD/CAD

Figure 6. Wave counting on the daily chart of USD/CAD.

This scenario was given in article USD/CAD fall may complete with an extension. Downward wave 5 is forming in the shape of the diagonal triangle which completion is expected at the second half of October, in synchrony with the majors. As waves iii and i are almost equal (iii > i) it was supposed that the final wave may assume the shape of the extension. Projected area of possible ending of the diagonal triangle is given in the chart in the shape of the red-yellow ellipse.

Thus according to the main scenario the nearest USD/CAD fall is expected in the shape of the extension approximately by 500-600 points within 5 weeks and only then USD strengthening is expected to begin.

Figure 7. Wave counting of 720 min chart of USD/CAD.

It is clearly seen in Figure 7 that wave iv of (c) has moved behind wave i of (c) high. Such an exception is possible in marginal markets though it still remains an exception to the rules. If price breaks the critical level (wave ii ending) wave (c) forming in the shape of the downward diagonal triangle is possible or this scenario may be changed completely.

USD/CHF

Figure 8. Wave counting of daily chart of USD/CHF. Alternate variant.

On Friday price exceeded the critical level of CHF having called the previous calculations into question. In fact, in Figure 8 it is clearly seen that the previous critical level has been broken as well as the upper edge of downtrend channel. That is why wave counting draft given in Figure 8 may be treated only as an alternate variant.

Moreover price fall to, at least, 1.18 point is necessary to confirm this scenario, that is price should pass no less than 800 points. Taking into account expected movement by 500-600 points of the currency pairs described in the nearest five weeks, such a movement is hardly probable.

Figure 9. Wave counting of daily chart of USD/CHF.

CHF scenario with already started strengthening of the dollar seems to be more attractive now. According to this variant upward wave A or 1 has formed already in the shape of the wedge. Currently corrective wave B or 2 is forming, supposedly, in the shape of the flat which may complete at the end of October.

Unfortunately, it is not confirmed yet that supposed zigzag [b] of B or 2 is completed (though we may assume it by the wave structure), that is why possible projection of wave B or 2 completion was specified by support/resistance levels and classical proportions of the flat pattern. 1.21-1.22, around 62% of fibo retracement, are preferable values for wave B or 2 completion.

Thus according to the main scenario the nearest USD/CHF fall is expected in the shape of the impulse or diagonal triangle approximately by 500 points within 5 weeks and only then USD strengthening is expected to continue.

At the same time according to the alternate variant wave B or 2 may be already completed (it is given in the chart in grey color). In this case uptrend will continue after a slight downward rebound, the confirming level won't be broken.

I would like to note that described variants of USD strengthening are not the only possible ones.

Reference