Dollar Close To a Bottom

• Euro Nearing End of Rally
• Japanese Yen Strength Likely Extends
• British Pound May Make a Run at 1.9700
• Swiss Franc Has Some More Room to Rally
• Canadian Dollar In a 3rd Wave
• Australian Dollar Topping
• New Zealand Dollar Long Term Head and Shoulders

EURUSD – The EURUSD is nearing the end of the rally from 1.2865. A likely level for a reversal is 1.3257/64. 1.3257 is the 78.6% fibo of 1.3364-1.2865 and 1.3264 is the monthly R1 pivot. Additionally, the 61.8% extension of waves 1 through 3 is at 1.3253 (1.3081 + (.618 x (1.3190 – 1.2911)). Daily CCI is above 100 and daily RSI is inching closer to 70 (currently at 65). While the 1.3250/60 level is attractive, the pair could reverse sooner. Since there are 5 waves up from 1.2911, we are looking for at least a correction of that rally. However, it is our contention that the pair could turn down in a more violent fashion and eventually take out 1.2865.

USDJPY – The impulsive decline in the USDJPY is likely a C wave that will complete the correction of the 114.42 to 122.21 rally. A potential terminus for wave C is 118.30/43. 118.43 is where the C wave (beginning at 121.63) would equal the A wave (122.21-118.97). 118.30 is the 50% fibo of 114.42-122.21. This level is close to the bottom of wave 2 (in the rally from 114.42-122.21) at 117.98. One characteristic of Elliott waves is that a correction following a 5 wave sequence where the 1st wave is extended tends to bottom near the bottom of the 2nd wave. Yesterday’s low at 120.35 is resistance.

GBPUSD – The longer term wave structure suggests that a major top is in place at 1.9915. In fact, the rally from 1.8090 traced out an ending diagonal. Ending diagonals are often fully retraced. A decline below 1.9260 strongly suggests that a top is in place at 1.9915. In the near term, a rally above 1.9680 is likely in order to complete an A-B-C correction of the decline from 1.9915 to 1.9401. The 61.8% fibo of the decline is at 1.9718 and the point where C would equal A is at 1.9709. In summary, a rally to 1.9709/18 is expected prior to a reversal.

USDCHF – The USDCHF is also nearing the end of its 3 wave correction. The pair is currently in the C wave position of the A-B-C correction. Although the pair has bounced this morning at the 50% fibo of 1.1878-1.2575 at 1.2227, the intraday charts suggest that the decline has more to go. Weakness from 1.2555 should unfold in 5 waves (the C wave). Currently, there are only 3 waves down from 1.2555. Watch the 61.8% fibo of 1.1878-1.2575 at 1.2145 for a bottom. A rally above 1.2438 would strongly suggest that a bottom is already in place.

USDCAD – The USDCAD is most likely in a wave 3 that has the potential to reach the 161.8% extension of wave 1 at 1.1297 in the next few weeks (1.1719 – (1.618 x (1.1879 – 1.1620)). 1.1719 needs to hold in order for the near term bearish outlook to remain intact. Potential support prior to 1.1297 is the point where the decline from 1.1719 would equal the 1.1879-1.1620 decline. This is at 1.1458, which intersects with both the 50% of 1.1028-1.1879 at 1.1455 and the 7/24/2006 high at 1.1461.

AUDUSD – The Aussie is due for at least a correction. Divergence with oscillators on the 240 minute chart favor the corrective outlook as does stalling at the previous top of .7940. A break of the short term trendline (bold) gives scope to a test of the 38.2% of .7706-.7950 at .7857. Price above this line indicates that there is potential for one more high. It takes a decline below .7827 to suggest additional bearish potential.

NZDUSD – There are 5 waves up from .6769 so at least a corrective decline is expected. However, given the long term head and shoulders pattern along with the 78.6% fibo of .7470-.5927 at .7138, it is possible that Kiwi is near a major top. The best interpretation on the daily accounts for an extended wave 1 from .5927. As mentioned with the USDJPY, a correction following a 5 wave sequence where the 1st wave is extended tends to bottom near the bottom of the 2nd wave. Thus, expectations are for a decline to .6528 from near current price. The 78.6% fibo at .7138 is risk. Coming under .6989 bolsters the bearish case.