Dollar Bull Returns - Will It Stay?

• Euro Still In a 5th Down
• Japanese Yen 5 Waves Down (5 Up in USDJPY)
• British Pound Breaks Last Week’s Low
• Swiss Franc Above 20 day SMA
• Canadian Dollar Turn?Is This It?
• Australian Dollar Targets Lows
• New Zealand Dollar Stationary

EURUSD – We are still looking for a low to be made below 1.2865, which would be followed by a rally that will retrace a portion of the decline from 1.3367. 1.3066 did hold yesterday as resistance so the bearish structure remains intact. Measured objectives are centered near 1.2750. The 61.8% extension of 1.3367-1.2865 / 1.3066 is at 1.2756 and the level where wave 5 would equal wave 1 is at 1.2747. Near term resistance is at the 38.2% of 1.3066-1.2912 at 1.2971 and the 61.8% at 1.3007. Remember that a decline below 1.2865 satisfies minimum expectations for a 5th wave down. Only a rally above 1.3066 (Friday’s) high suggests greater bullish potential.

USDJPY – The break above 121.38 brings 122.21 back in focus as the longer term implications from the break of the 8 year trendline are back at the forefront. A break above 122.21 exposes a measured objective at 123.21, which is where the 114.42-119.67 rally would equal the rally from 117.97. In the short term, it looks like there are 5 waves up from 119.96 so a corrective decline is probable. In the event of a decline, look for initial support at the 38.2% of 119.96-121.66. This is also the 4th wave of one lesser degree (2/8 low)

GBPUSD – Our focus remains for a test of 1.9307, which is where the decline from 1.9750 would equal the 1.9915-1.9482 decline. The decline below last week’s low at 1.9482 bolsters the bearish case as does the break below a supporting trendline drawn off of the 10/16/2006, 11/17/2006, and 1/9 lows. A decline to 1.9307 would possible complete an a-b-c correction but an extension of weakness to below 1.9261 would suggest that a much deeper decline was underway. Near term resistance is yesterday’s low at 1.9543.

USDCHF – The USDCHF has held the 1.2375 level after testing it 3 times since 1/23. The shelf of support has led to a rally in what may be the final 5th wave to complete a 5 wave sequence from 1.1878. The next bullish target is the 1.618 extension of 1.2271 – 1.1878 / 1.2110 at 1.2746. 1.2427 is initial support and price above there warrants an aggressive bullish stance. Only a decline below 1.2375 negates the bullish wave implications. Price back above the 20 day SMA favors bulls as well.

USDCAD – We wrote yesterday that “we have been calling for a major turn in the USDCAD to occur at or near the 1.618% extension of 1.0927-1.1456 / 1.1028 is at 1.1883. The pair reached 1.1873 on Friday and has turned down slightly. One more high, above 1.1873 would best serve the turn scenario. It looks like the USDCAD is unfolding in an ending diagonal from 1.1645. One more high would complete the 5 wave structure and potentially lead to a forceful decline.” We got that high yesterday as the pair hit 1.1879 and has since declined to below 1.1800. A decline below the 1/25 low at 1.1731 would bolster the bearish case and a decline below 1.1644 strongly favors a resumption of the long term downtrend.

AUDUSD – We wrote yesterday that “the c wave has unfolded as an ending diagonal, an inherently weak pattern that often gives way to a forceful decline.” The a-b-c correction that we speculated was unfolding appears to have ended at .7827 and the decline below the top of wave a at .7773 confirms the bearish bias going forward. Support going forward is at the 1/31 low at .7698 of which a break exposes the 11/13/2006 low at .7614. Keep in mind that the longer term triangle (2 years long) also favors the downside.

NZDUSD – We have concentrated recently on the fact that “Kiwi bounced from where the .7038 decline equals the .7099-.6841 decline. As such, we are left with just a 3 wave correction of equal legs from .7099. This structure is suggestive of a bottoming in NZDUSD (as long as .6769 holds).” However, the inability of the pair to hold above former resistance (now potential support) at .6868 gives scope to more bearish price action. A bullish outcome is possible as long as .6769 holds but the probability is not as great as it was yesterday when the pair broke above .6868. A neutral stance is warranted until things clear up. .6769 is the bearish pivot and .6896 the bullish pivot.