Thinking 2011: USD to decline further in Q1 then?

As I get prepared for the year 2011, I think I should make my stance clear:

I’m a non-professional currency speculator who has been successful in making overall correct bets in 2009 and 2010, or as far as this blog recorded. I’m an ordinary being who do not predict the future correctly. Yet, I’d prefer proposing the hypotheses on the short, mid, and long term market fluctuations before betting my p0recious capital (knowing it would probably turn out to be wrong). When I took positions, I’ve been most successful in crafting the entering and exiting strategy that spans for a few days to a week. I assume I make mistakes a lot, and I did in fact. But I hope that I will make up the mistakes by more winning bets, and I’ve been profitable in that way so far. But there is no guarantee in the future. So, I’m always conservative in the size of the position.

I look at various charts of stocks, currencies, and commodities. I’m not a professional trader, so I have constraints in what I can trade. It is not legally safe for me to trade the stocks of companies which have direct business to my day job. So, in general, I prefer to trade currencies and indices.

I use a bit exotic technical analysis called Elliott wave principle to decide when to buy and sell. I wrote some introductory articles and there are much better textbooks than my writings, but it seems many people find this method a little complicated and hard to use practically. Some other people think it’s even flawed in logic. How other people think of the method is not my concern, and I use it because it’s been saving me from losing money.

I see the price fluctuations as the combinations of waves of various size and frequencies. The labels I put in the charts on this blog is the counting of the waves based on the rules of Elliott wave. It is not a science, and there are often multiple ways of counting the waves, and many counts get rejected as the future price actions unfolds. I also could make mistakes in following the Elliott wave rules in counting waves, but I try not to. Either way, I often erase the past labels, and update the count in the most plausible way as of present.

So goes the first chart. This is a weekly chart of EURUSD. I think we are in the rally towards b that may reach or go higher than 1.3600 in Q1 of 2011. Then EURUSD will have a decline towards c that concludes .b wave in the latter half of 2011. My current view anticipates a big rally after that, but that is too far away to concern for my short term trades.

These charts were saved December 24, so it does not capture today’s spike of the EURUSD towards 1.3250 (as of now).  I’m interested in being long EURUSD for a short period towards C that concludes b as in the 6 hour chart below. That may become my first trade in 2011.

Now to AUDUSD weekly chart. My 1st scenario in this mid term forecast is as labeled a, b, and c, and it is more bearish for Aussie. The 2nd scenario is labeled with (I), (II), and (.I), (.II), (.III) that are actually sub-waves of (III). Though those views are completely split in the mid term, I would think AUD go higher against USD in Q1 of 2011, then see a either bigger (i.e. the 1st scenario) or smaller (the 2nd scenario) decline afterwards.

If I zoom up to daily chart, the current uptrend so far is not what Elliott wave calls an impulse, and possibly making an ending diagonal wave that is a reversal sign. So, I will rather observe during Q1, and if I see a sharp decline, I will start crafting the strategy of selling short AUDUSD.

So, overall, I am anticipating USD to decline against EUR and AUD in Q1. I’d buy EURUSD than AUDUSD because EURUSD was oversold in the short-term; it may see a short-cover and Aussie was bought significantly already. But I’d be prepared for US dollar to get strength in Q2. That is negative for EUR and AUD. If the strength of USD is indeed the sign of “risk off”, stocks and commodities will also see a substantial decline in Q2 and later in 2011.

That is my view for the time being.

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