The USD has been extending its losses since Tuesday, when the U. S. stock market turned sharply lower with the Dow Jones Industrial Average down three days running for the first time this year.  The correlation between the markets remains unchanged.  The USD/JPY and other JPY pairs are tracking the stock market, while the EUR/USD and other USD pairs are moving in opposite direction.  As such, the EUR/USD is at its highs, and is now testing the 1.3380 area.

From a technical perspective, we see all USD pairs in fifth waves of 3.  We know that after every five waves trend will change, if only temporarily.  Below I have a basic structure of a five wave rally on which I marked a current position on the EUR/USD .  I see it at the end of wave three, so pull-back is expected.

I see the pull-back at the end of wave three on the charts above, so it can be expected.  So what does this tell us? Quite alot, I think.  First, if you are long, you could be out of the market at this point.  Alternately, if you want to get in and ride the EUR/USD trend, then it's probably better to wait for correction.  This also tells you a lot about the other markets.  If correlations will remain as they are, and if the EUR/USD will turn lower from 1.3380/1.3400 resistance, then the stocks will probably find a support that will cause some rally on JPY pairs as well.

Forex Analysis by Gregor Horvat at ForexPros. com