USD. A pause or the end of a black streak?

The dollar's decline last week formed an interesting wave picture that allows supposing the completion of the global decline of the US currency in the nearest future as one of the possible variants. Unfortunately this variant isn’t unique so far but it mustn’t be shrugged off.

At first we will consider the USD/JPY pair because of the critical situation for the current scenario v.1 there [refer to The review of the bigger Time-Frames (Annual Wave Analysis, 2008)].

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On Friday price broke through the critical level 103.91that supposes a change of the scenario considered in detail in the article Possible trade with an excellent profit/risk correlation.

At the same time the scenario with a descending diagonal triangle C of (B) of [E] remains possible if we make some small changes in its counting (refer to Figure 1, above).

The same price movement corresponds approximately to calculations set out in another article System of equations with an endless number of solutions .

But in this scenario correlations between waves are rather marginal next to critical than optimal. For example further forming of the downward diagonal triangle may break the critical level 101.67 (the ending of wave [D] of IV).

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In this case the geometry of the global triangle IV will be distorted and at the best case it will have to be transformed into a triple three. At the same time wave (B) of [E] of the supposed zigzag [E] of IV will go behind the beginning of the zigzag itself which is rather an exception than a rule for zigzags (refer to Figure 3-43 of my book).

All these facts relegate scenario v.1 given in the Figure and considered in to The review of the bigger Time-Frames (Annual Wave Analysis, 2008) to the background not canceling it so far.

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If we consider the price decline since the middle of the last summer from another point of view it isn’t ruled out that we face an almost completed ordinary zigzag which demonstrates not only optimal correlations of legs but alternation for zigzags as well (refer to page 140 of my book).

If the supposition is true then in the first place chances that price won’t break the critical level 101.67 increase in comparison with the previous scenario. In the second place this zigzag is an almost completed downward three which may be one of the main wave of the global horizontal triangle.

Thus if we consider this construction to be an almost completed zigzag (an only in this case!), the following scenarios become actual.

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The modified first variant v.1m doesn’t rule out that wave [E] of IV of the global horizontal triangle IV is itself forming in the shape of a triangle (or a horizontal extended correction).

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Within the framework of the scenario v.1a wave IV is assuming the shape of a double three with a triangle as the ending wave [Y] of IV (refer to Figure 5-14 of my book).

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The previous scenarios considered the forming large horizontal correction in the form of wave IV of a global downward impulse. But we must also take into consideration a variant when not an impulse but a global double/triple three is forming.

In such a case it isn’t ruled out that horizontal triangle [X] of x is almost completed and a continuous strengthening of the US dollar should be expected in the near term.

In contrast to USD/JPY variant 1 for the European currencies [refer to The review of the bigger Time-Frames (Annual Wave Analysis, 2008))] isn’t at a critical pass and allows further dollar decline (it is considered in daily forecasts).

One of the quite possible variants of wave counting within the framework of scenario 1 doesn’t rule out that the global weakening of the US dollar is almost completed (refer to Figures 7..10, below).

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If this wave counting is true a downward and rather proportional zigzag A-B-C of (B) of [B] will complete in the near term. The weak point of this variant of wave counting is the fact that wave [iv] of C isn’t so long is it was expected earlier (its length is a little bit less than the length of wave [ii] of C).

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Similar considerations refer also to the EUR/USD pair, which is a practically mirror twin of USD/CHF.

If this wave counting is true a downward and rather proportional zigzag A-B-C of (B) of [B] will complete in the near term. The weak point of this variant of wave counting is the fact that wave [iv] of C, isn’t so long is it was expected earlier (its length is a little bit less than the length of wave [ii] of C).

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The supposed wave [B] of V itself of these currency pairs may assume different shapes within the framework of scenario 1 — from an extended wave flat with considerable strengthening of the dollar to an extended horizontal correction with more modest positions of the dollar.

But until the decline of the US dollar since the end of 2005 may be interpreted in the form of a completed impulse structure scenario v.2 for the euro and Swiss franc supposing the beginning of a global strengthening of the US dollar isn’t possible (refer to The review of the bigger Time-Frames (Annual Wave Analysis, 2008)).

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The wave picture of the British pound allows both further weakening of the dollar and the beginning of its strengthening in the near term within the framework of scenarios v.1 and v.2 (refer to The review of the bigger Time-Frames (Annual Wave Analysis, 2008)). One of such variants is given in Figure 10. Variations of this scenario will depend on whether wave A of (E) has completed or not and on the depth of the supposed correction B of (E).

Thus the global strengthening of the dollar in the nearest future within the framework of scenario 2 considered in The review of the bigger Time-Frames (Annual Wave Analysis, 2008) at the moment is allowed only by the wave picture of GBP/USD and USD/JPY. While the beginning of a more modest strengthening of the US dollar in the nearest future within the framework of the accepted scenario 1 isn’t ruled out by all the considered currency pairs.

Addition as of 10.03.08 for USD/JPY

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Last Friday the price broke through the critical level 101.67 and at once returned back. Let’s consider what consequences this may have for the further price movement.

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Strictly speaking the geometry of a multimonth horizontal triangle is distorted as the price declined 27 pips below the previous ending of the main wave of the supposed triangle (though if constitutes only ~0.5% of the length of the first wave). At t he best case this triangle can be represented in the form of a triple three without changing the accepted scenarios. At the worst all the scenarios with this triangle should be reconsidered.

But the fact of a short-term breach of the critical level hasn’t changed the core of the last multimonth wave structure. It remains an extended horizontal correction regardless of how it is marked (A)-(B)-(C)-(D)-(E) or (W)-(X)-(Y)-(X)-(Z) (refer to Tables 3-1 and 3-2 of my book).

At the same time scenarios v.1 and v.1a prove to be open to question and are relegated to the background (refer to the article USD. A pause or the end of a black streak?).

While variants v.1m and v.2 remains valid so far (refer to the article USD. A pause or the end of a black streak?).

Besides taking into consideration unfavorable economic indicators for the dollar scenario v.3 gains weight [refer to The review of the bigger Time-Frames (Annual Wave Analysis, 2008)].