Week of August 12, 2008

EURUSD continues to move lower with the 38.2% of the 1.1642-1.6037 rise at 1.4358 as the next objective. Currently the pair trades at 1.4896 which is the exact level EURUSD was trading at when on Feb. 26, 2008 Ben Bernake had testified before the Congressional Committee on US Economic Policy, as on that day Bernake’s comments regarding the weak US dollar sent the EURUSD soaring to new all time highs and in the process dragging crude oil and commodity prices along the way. It appears now that the markets have returned to a state of normalcy with the US dollar higher and commodity prices much lower. Now, back to the EURUSD, the fall from 1.6037 has reached a low of 1.4816 as of this writing, with any sustained move back above 1.5282 confirming the fall from 1.6037 is complete at today’s 1.4816 low. However, any move up should be considered corrective and not impulsive, as the active medium term trend remains down. It is possible that the recent move lower in the EURUSD is only the initial wave of a multi-month move to the downside for the EURUSD, with the initial target in the months ahead at 1.3054 ( 38.2% of 0.8227-1.6037). So, assuming that the fall from 1.6037 is Wave 1, then Wave 2 up should not sustain above 1.5427 which is the 61.8% of the 1.6037-1.4816 fall, with Wave 3 down to follow targeting 1.4358 initially and well beyond. So, nothing yet confirmed, but something to consider. But what we do know is the US dollar has made broad gains in recent weeks and we should expect a correction soon. Continue to use rallies as selling opportunities while to the upside a sustained move back above 1.5776 will see further rise towards 1.5844 and beyond. But for now, the trend remains to the downside with 1.4358 as the objective.