As can be seen, euro’s decline has clearly traced out an Elliot 5 wave pattern .If the above reading is right, then euro could be bracing itself for a 3 wave corrective move – a sharp rally that could take it towards 1.4060. In any case the corrective rally is unlikely to extend above 1.4160-1.4250.
Pound
Closely following its European counterpart, the sterling may also come in for a relief rally that could potentially see the pair back towards 1.5950 to 1.6060.
Since the overall bias is still tilted towards bearishness, gains are unlikely to extend above 1.6170 giving opportunities to sell the pound there for the next thrust down towards 1.49-1.50
Only a break above 1.6350 will negate the above bearish view.
Dollar Index
The dollar index is likely to take a breather after the much awaited rally. Can expect the index to fall back towards 78 -78.50, but is unlikely to fall below this level. The 200 day (black line) and the 100 day (green line) Averages are expected to lend terrific support for the index and usher in another strong bounce for the index.
This impending correction in the dollar index is likely to be accompanied by a rise in risky assets. One can expect Indian Equities - Sensex to retest 17,100 before correcting down again. Gold also could evince renewed interest during this period of dollar correction towards 78.50.
Indian Rupee
The dollar/ rupee pair tested the critical 46.70 – 46.80 territory and has currently slipped below 46.30 again. While a test back to the support territory of 46 is imminent, the outlook is slightly mixed, with budget around the corner and therefore only a break below 45.96 should invite fresh re-entry of selling.
Sustained trading above the falling black trendline would be needed to signal that the dollar is finally out of the woods.
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