Dollar Bull Returns...This Time For an Extended Visit

• Euro In Wave C Down
• Japanese Yen Breaking Major Levels
• British Pound To Head to Low 1.8000’s
• Swiss Franc Wave C Up
• Canadian Dollar 1.1879 is Critical
• Australian Dollar Breaks .7827
• New Zealand Dollar May Be At Front End Of Long Term Decline

EURUSD – The decline to start the week confirms our bearish bias. Ultimately, we look for the decline that began at 1.3262 to test at least 1.2757. This is where the decline from 1.3262 would equal the 1.3370-1.2865 decline. The 1.3370-1.2865 decline took 29 days and the 1.2865-1.3262 rally took 33 days. Given that the decline now underway is the third wave (either a C or a 3), look for this decline to accelerate and reach the cited target in faster than 30 days. The major long term supporting trendline intersects with the 1.2700 figure at the end of March. Near term support is at the 2/22 low at 1.3080 but look for a test of 1.3018, which is the 161.8% extension of 1.3262-1.3142 / 1.3096.

USDJPY – Price has broken below the confluence of the 200 day SMA, 61.8% of 114.42-122.21, and trendline drawn off of the May 2006 and December 2006 lows. We mentioned Friday that “a break of this support (daily close below) would indicate a major change in trend.” The USDJPY closed below the 200 day SMA on Friday but held above the trendline (on a closing basis). That trendline is at 1.1685 today and is now resistance. The next major support is the 12/5/2006 low at 114.44.

GBPUSD – The decline below 1.9260 strongly suggests that a major top is in place at 1.9915. Ultimately, we look for the ending diagonal to be fully retraced, which means that price should test the lower 1.8000’s. Former support at 1.9260 is now resistance. Short term support is at the 61.8% of 1.8515-1.9919 at 1.9054 (200 day SMA is at 1.9036).

USDCHF – Although the USDCHF spiked below the 61.8% of 1.1878-1.2575 at 1.2144 this morning, we still favor the bottoming scenario. The next move of consequence should be in a wave C rally (inverse of EURUSD) to above 1.2575. A push through Friday’s high at 1.2264 bolsters the bullish scenario. The low at 1.2109 should remain intact.

USDCAD – The long term bearish bias remains intact. The decline off of the top of the 2 year channel combined with the outside monthly reversal favor the downside. Ultimately the decline from 1.1879 should come under 1.0927 to complete a 5th wave. The rally from 1.1564 has retraced 78.6% of the 1.1879-1.1564 decline in a 2nd wave. The next few weeks should see price come under 1.1564 and possibly even 1.1250-1.1326 – which marks the 138.2% to 161.8% extensions of 1.1879-1.1564 / 1.1761. 1.1880 is critical resistance. A push above, while not expected, targets the 1.2000 figure

AUDUSD – The decline below .7827 favors the bearish scenario and focus in now on the 1/31 low at 7698. A longer term bullish outcome is still possible if .7698 holds as support. If .7698 is broken, then look for a test of the 61.8% of .7413-.7983 at .7631. The 2/28 low at .7853 is resistance although price is unlikely to come close to this level in the near term.

NZDUSD – Given the extent of weakness so far, it is possible that Kiwi is in the initial stages of a big C wave that will eventually break below .5927. The monthly chart below shows the wave count for this interpretation. The pair is currently testing support from the 11/1 high at .6757. Given this support and the possibility that the NZDUSD is nearing the end of a short term 3rd wave, don’t be surprised to see some consolidation in the next day or two. .6970 is critical resistance with .6850 as interim resistance.