The Chart du Jour
From time to time, readers will write in to us and query what we think of the overall surprising strength of the U.S. dollar. Certainly, with a huge merchandise trade deficit and Greenspan now aggressively lowering rates, few economists have gotten the dollar strength right in their market calls.
At Sandspring.com, we have periodically put out long-term charts suggesting that the Fibonacci rhythm of USD/JPY will eventually take it to 167.50. But our vision of the path there suggests that this move will come from reflationary policies in Japan that debase their domestic currency over time, rather than from U.S. economic strength. From a shorter term trading perspective, we turned bullish near 116.50, but spotted short term resistence levels at 122.50 as well as up 127.35 where we advised taking profits. We're now flat and see nothing immediately brewing here.
In the euro, we turned short term bullish a bit prematurely in September of last year, got a bounce thereafter, but certainly only a minimum bounce. We are now quickly dribbling back toward last September's lows. From a long term perspective, we see two important Fibonacci levels in the chart below: 1.1152 and .7735 -- but we are not exactly near neither. The euro is relatively low, but certainly not low enough to represent a good risk-reward trading opportunity. The best we can advise for the euro is to stand aside.
And then we come to the pound pictured at the top of this page. Almost from the inception of Sandspring.com, we have been bearish on the pound -- even when its chart pattern appeared largely as random chop back in the mid-1.60's in January 2000. We reiterated our bearishness later on in July 2000 when a more clear impulsive decline had begun. In our subscriber-only piece "Four Themes for 2001 and Beyond" written this March, we updated our bearish thoughts with the chart above, pointing to an unfinished Fibonacci objective at approximately 1.3611.
With the markets apparently un-enamored with another term for Tony Blair and a non-decisive euro policy, we are now quickly approaching that target. Once we get there, it may be hard to tell whether, on an Elliott basis, we will be ending a 3-wave (as labeled above) or a 5th-wave of a fully completed move (as some of our prior wave counts might have suggested). But in either case, it will present a buying opportunity.
And when might such a pound low occur? Strange as it may sound, I have seen the currency markets often reach and reverse off of extreme targets near solar and lunar eclipses. June 21st represents a solar eclipse directly on the summer soltice. We wouldn't bet on much pound weakness beyond that date presuming 1.3611 gets reached between now and then.
It may also be of interest to some that because so much time (and thus timeliness) has now transpired, we recently released three of our 2000 subscriber-only articles. These now appear under the public Earlier Articles section of the website. Perusing through them may give one a sense of the added premium level of analysis we provide to subscribers.
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