Although I believe we have seen the short-term highs in the dollar, I don't want to chase this dollar weakness tonight. Many of the US dollar pairs have formed an initial 5-wave moves towards a weaker dollar in a larger degree wave 1, which means a deep correction higher in the US dollar is needed for wave 2, before wave 3 breaks down to a new 7-day low.

In EUR/USD terms, this means I need to see a C-wave move down to 1.5545 to complete wave (II) area before I would consider getting long for a move above 1.5575. I am not going to put bids in tonight, rather an alert on my phone when this level trades for the following reason. We are coming off a very significant 1.5300 low that was preceded by a ton of market momentum down from 1.5843 to 1.5302 that had many traders calling for a EUR/USD break down below 1.5000. Many times the initial 5-wave reaction (up in this case) is followed by a deep retracement back towards the supposed breakdown point as a result of carry over momentum from the prior, and massive, selling effort.

So as I said, I am going to set an alert and watch how this level trades tonight. I was stopped out of my final piece of EUR/GBP for a solid 52 point winner.



Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.