From the point of view of the wave analysis relative nature of the price movement is the main distinct feature of the Forex market, which impacts the global wave picture of the currency pairs. The chart of any currency pair is the chart of the relative strength of one currency against the other one. Consequent “forward and upward” progressive movement, as in case of the stock index, where weak stocks are replaced by the strong ones, is hardly probable. It is most probable that cross-rates of the main currency pairs are in the state of the permanent global correction, forming a complicated many-year corrective structure and increasing the number of such wave counting variants. Inside this structure different combinations of Elliott's wave patterns can be specified, with the help of which current situation may be analyzed and further prices movement may be projected.
Moreover, Forex high marginality, currency interventions and 24-hour trading within the business-week with trading activity depending on the session are the distinct features of the Forex market.
Current situation in the Forex market
For the currency pairs under consideration the 21st century began with the USD full scale downtrend, which for the European currencies was of a rather impetuous nature. By now according to the wave picture on the big time-frames the beginning of a new trend in favor of the US dollar in the near term is not ruled out [in GBP/USD such consolidation has been underway since November 2007 (more specifically, it is the weakening of GBP, but everything is relative in the Forex market)].
Depending on the depth and duration of the expected USD strengthening we can single out three main scenarios of the currency pairs movement. Let’s consider them in detail.
Note. Here all the charts of the currency pair USD/CHF and general considerations about it are true for the currency pair EUR/USD, but as in a mirror reflection (except for the exact absolute values of the EUR/USD chart itself, which you can found in the corresponding section).
1. Large correction on the back of the USD global declining (v.1)
The most probable from my point of view scenario belongs to this group. It has been under consideration for the last several years, despite of difference of possible of variants of wave counting. It suggests the beginning of a large scale consolidation for the USD in the near term approximately 30 figures deep. . Possible (but not the only ones!) variants of wave counting of the currency pairs under consideration are shown in the pictures i1..i3, below.
The Swiss franc traditionally fits in a downward diagonal triangle which can be considered to be a triple zigzag too. If the supposition is true then at present the ending zigzag V is forming, more precisely, its wave-link [B] of V, which connects the legs of zigzag [A] and [C] of V.
What shape wave [B] of V will assume isn’t known yet. But judging by the amplitude of wave (B) of [B] of V, it may be an expanding or running wave flat, and also some kind of extended wave correction.
Permanent search of an optimal variant of counting has led to changing of the pound’s wave counting. Supposedly global double or triple three is forming, and currently we are in the ending wave of the supposed horizontal expanding triangle [X] of x, which is a link in the ascending double zigzag x.
The Japanese yen doesn’t rule out that the global horizontal triangle IV will continue to develop, and to complete it the price needs to complete forming of the ending zigzag [E] of IV.
It is fair to say that if the price breaks the upper critical level (drawn by the top of wave [C] of IV) it may lead to substitution of the triangle for a triple three without principal change of the further expected price movement (see tables 3.1 and 3.2 of my book).
2. The dollar’s global decline has completed (v.2)
The scenario suggesting that the dollar’s global decline will complete in the near term and its large scale consolidation will begin belongs to this group. It suggests the beginning in the near term of the dollar’s global consolidation approximately 100 figures deep. Possible (but not the only ones!) variants of wave counting of the currency pairs under consideration are shown in the pictures i4..i6, below.
Theoretically we can’t rule out that global diagonal triangle has completed, but in this case the second leg of zigzag V constitutes only ~38% of the length of its first leg [A] of V, and the impulse [C] of V itself is rather clumsy. Besides, in contracting diagonal triangles the price tries to break the lower forming line, while in our case 20 figures more left to reach it.
Everything said above doesn’t allow to bring to the forefront such kind of scenario.
The completion of the global double zigzag x isn’t ruled out. A rather clumsy impulse (C) of [Y] of x is an alerting feature of the given counting.
In this scenario we have to deviate from the already customary downward global impulse and to adjust the general wave counting of the yen to a corrective form. If the supposition is true then a global double or triple three, and not a global impulse, is developing with a double upward zigzag x.
In such a case currently the wave link [X] of x has already formed in the form of a horizontal triangle with all ensuing consequences.
3. The dollar’s global decline continues (v.3)
The scenario suggesting that the dollar continues to fall after a modest correction, belongs to this group. It suggests the beginning in the near-term of the dollar’s corrective consolidation no more than 10-15 figures deep. Possible (but not the only ones!) variants of wave counting of the currency pairs under consideration are shown in the pictures i7..i9, below.
I think this scenario is demonstrably reflected in the charts i7..i9 and no additional comments are required.
Thus, the main expected event of the year 2008 from the point of view of forecasting movements of the currency pairs under consideration will be the confirmation of one of the considered scenarios..
Note
This report reveals the analyst opinion of the situation at the moment of its release. This report is subject to change, it will be reflected in daily analyses or in additional articles in Wave analysis.
It should be remembered that EWA forecasts show probable price movements.
Dmitry Voznuy
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January 18, 2008
