The currency markets will really begin to shift (as everyone involved in it is hoping) when the dismal news stops and the cheerful news starts coming. Former US Federal Reserve Chairman Alan Greenspan said in an interview banks should not prolong the agony: it is better to take all their losses now and let the market bottom out so that the economy can start to recover.

Short-Term Technical Outlook: Top Up before Downturn

The expectation in the last quarter was there would be a rally to 1.4580 followed by a top and a subsequent reversal. Looking at the technical data, there may be good reason to look at 1.4309 as the most likely terminus on the wave iv (part of the 5-wave rally that began at 1.3261) of the larger sequence of 3 waves. The wave v of 3 may just burst through 1.4967 over the next four to six weeks. It is reasonable to target the 1.5364 level — the 61.8 percent follow-through extension from i to iii. There is enough data to support the bullish bias over the short term, as extremes in a bearish sentiment for Euro and a bullish sentiment for USD have been detected. It is possible this rally could continue through towards 1.6000 in keeping with the tendency of currencies to exhibit extensions on the 5th wave and to follow through with a blow-off top. The formation of the pattern is the key aspect in determining when a turn is about to occur (in a rally or a decline). It is important to follow the current pattern.

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