Dollar Extends Losses; Currency Pairs Close in on Targets

The US dollar plunged across the board today and various pairs have reached or are very close to reaching important levels. In particular, the euro / dollar is nearing completion of a 3 wave rally from the October low (in what will probably be the first of 2 such rallies). Resistance should be strong at 1.43.

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After today’s surge in the EURUSD, the pair is probably nearing completion of the first of several 3 wave advances that will carry price close to 1.50 over the next several months. A brief history lesson is in order after today’s rally. Since the introduction of the euro, the EURUSD had never rallied more than 5% in one week (most was 4.84% in December 2000). This has changed as the EURUSD rallied just over 5% last week and has rallied exactly 5% to this point already this week. Price spiked through 1.41 today and through the 50% of the drop from 1.6040 in the process. The next level of potential resistance is weekly pivot R3 at 1.4313. Needless to say, this rally is extended and today's nearly 3% gain is one of the largest % gains in the EURUSD's history. Similar advances (in % terms) have resulted in at least multi-week tops within 1 to 2 days. In summary, expect resistance at 1.43.

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No change from this morning: It is still possible that last Friday’s spike down to 88.10 provides more significant support but it is best to stick with the strategy I have employed over the past number of months. That is, keep moving the stop down as price decreases because longer term charts argue for a drop below 80 in order to complete a long term 5 wave drop that began in the 1970s. “In viewing the rally from 88.10, I am more inclined to stay bearish. The rally is not clearly impulsive (which would mark a probable trend change), so there is little reason to flip from bearish to bullish. In fact, the rally counts best as a double zigzag correction.” Move risk to 92.