Elliott wave analysis of the week - January 3, 2010

I hope you all enjoyed the holiday season. This is the first Elliott wave analysis of the week in 2010.

Last month, I profited quite a bit by short selling AUDUSD, but now I am staying away. Why? Look at this chart:

In my count, the black 4 wave is invading the territory of the black 1 as I showed with two red horizontal lines. This is not a good news for short seller as this overlap makes the current downtrend non-impulsive, implying that the substantial strength in Aussie. At best, this is the leading diagonal if this downtrend is to continue. I won’t be surprised if we will see an unexpected soar in Aussie in coming months. Meanwhile, I am still very bullish on US dollar across the major currency. So, I am out of AUDUSD trade for now.

Meanwhile, we started to realize tons of problems in Euro-regions, and it is natural to think Euro may give back at least some to US dollar. The chart is telling the same story:


I thought we were in the wave 2 pull back from Dec 22 ’09 low. In Elliott wave guideline, Wave 2 most likely has the characteristic of straightforward zigzag (a-b-c) wave. The current rebound is rather very complex, and it is not rebounding as strong as I had anticipated. It’s not even reaching to 38.2% retracement that is around 1.4570. So, I decided to re-count the wave: Dec 22 low is now purple .3, and we are not over with blue underline 1. We are either in or finished purple .4 wave. We should see further decline of EURUSD.

This week, I will see if EURUSD goes back to 1.4420 level. If that happens, I will be ready to trigger stop selling entry, aiming to take profit around 1.4100 to 1.4070.

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