Australian Dollar at 17 Year High - Where From Here?

• Euro Right Back Up
• Japanese Yen Remains Above 119.00
• British Pound Impulse Rally
• Swiss Franc False Break
• Canadian Dollar Breaking Channel
• Australian Dollar 17 Year High
• New Zealand Dollar Ending Diagonal

EURUSD – The EURUSD is playing out as expected. “We are looking for a significant top due to the 7 wave rally from the November 2005 low at 1.1640. 7 waves is really just two 3 wave structures linked together by an X wave. This is known as a double zigzag and is a countertrend movement.” The terminal thrust from the triangle is complete and there are 5 waves down from 1.3439 to 1.3352. However, the rally that has ensued has carried within pips of 1.3439. For the bearish structure to remain intact, price must roll over before 1.3439. Coming under 1.3338 bolsters the outlook for lower prices. A break above 1.3439 encounters resistance at the March 2005 high of 1.3483 – this level is reinforced by monthly R1 at 1.3487

USDJPY – The clear 5 wave rally from 116.37 sets the stage for more gains but the confluence of the 61.8% of 122.17-115.14 / monthly R1 at 119.48 may be difficult for bulls to overcome. If this level is cleared, then the bullish bias is that much stronger. The bit of weakness that we saw last night is either wave 2 or the first leg of wave 2 that will test down near 118.43. Either way, the bigger picture is bullish. The risk reversal rate on 1 month options is increasing from its most depressed levels since March 2004. The USDJPY bottomed at 103.40 then after having fallen from 112.30. The ensuing rally say 114.90 in a little less than 2 months time.

GBPUSD – The correction that we were looking for to test 1.9545 appears to have ended at 1.9589 as the rally from there is in 5 waves and impulsive. The 4/4 high / 78.6% of 1.9822-1.9589 at 1.9772 may prove formidable as resistance and support should be strong at 1.9671 (former 4th wave) if higher prices lie ahead. However, the triple top and shooting star on the weekly chart urges caution and suggests that a major top is forming. Coming under 1.9589 negates the near term bullish outlook (under 1.9671 would be the first indication that this rally will be fully retraced) and brings the ‘top forming’ scenario back to the forefront.

USDCHF – From yesterday, “The short term subdivisions have cleared up with the USDCHF tracing out a small 5 wave advance from 1.2122 to 1.2232. A small consolidation may have already occurred but a dip should be short lived with Fibonacci support beginning at the 38.2% of 1.2122-1.2232 at 1.2190 (the 61.8% is at 1.2164).” The clear ‘5 up’ extended to 1.2281 but the USDCHF has slipped to the 61.8% of 1.2122-1.2281 at 1.2183 – and lessened our confidence in the USDCHF bullish outlook. Still, a bullish outcome is possible as long as price remains above 1.2122.

USDCAD – From yesterday – “There are 2 assumptions two scenarios that we are working with. There are 5 waves down from 1.1828 but that may be the end of a correction (an A-B-C from 1.1879) rather than the beginning of an impulsive move. The declines continue to exhibit impulsive characteristics, but a clear break of parallel channel support is required before we can get aggressive.” The USDCAD has broken through parallel channel support today (a daily close below would be even more convincing). Former reaction lows at the 12/20/2006 low of 1.1430 and the 11/28/2006 low of 1.1286 are potential support. Be wary of getting too bearish here though as the decline from 1.1635 may be an ending diagonal that will be fully retraced before the next leg down.

AUDUSD – The AUDUSD continues to rally impulsively but we maintain that the rally is in its latter stages. Daily oscillators (CCI and RSI) are overbought and divergent with recent highs. Also, the break that occurred at .8000 was from a triangle and triangle breakouts are terminal (meaning that they are eventually retraced). The daily chart below shows the triangle (a-b-c-d-e) and the 5 wave rally that has ensued and RSI. The rally has extended to monthly R1 today, .8279, which is a potential reversal point. The next level is not until R2 at .8410.

NZDUSD – The decline from the March 2005 high to the June 2006 low lasted 68 weeks. The rally from the June 2006 low has lasted 41 weeks (41st week ended on April 6th). The long term rally and decline is in Fibonacci proportion this week. Since this is the 42nd week (68/42 = 1.618), the odds of the NZDUSD putting in a significant top this week are high. Monthly R1 is a possible reversal point at .7327. Near term, it looks like the NZDUSD is tracing out an ending diagonal in a 5th wave from .7082 – these patterns lead to violent reversals.