Dollar Continues to Weaken...Relief Around the Corner?

• Euro Hits 1.3400?Getting Extended
• Japanese Yen Demand at 118
• British Pound Up 6th Consecutive Day
• Swiss Franc Turning Over
• Canadian Dollar 1.1500 is Key
• Australian Dollar Heading to .8100
• New Zealand Dollar Challenging 2007 High

EURUSD – We remarked yesterday that “this correction should give way to a rally above 1.3344 with a target at 1.3387 (where wave 1 would equal wave 5)” . The EURUSD surpassed our target and made it to 1.3413 last night. The 5th wave may not be complete since the rally from 1.3271 consists of just 3 waves. As long as the pair remains above 1.3325, the possibility remains that the EURUSD could rally once more to above 1.3413. However, risk is quickly shifting to the downside. Daily RSI is divergent at the new high as well. Next support is at 1.3271.

USDJPY – As long as 118.04 holds as resistance, the triangle structure remains intact and the next move of consequence should be down towards triangle support near 116.50. Coming under 117.39 would increase confidence in the bearish outlook. A break above 118.04 gives scope to a test of 119.11, which is where the 115.15-118.51 rally would equal the rally from 115.76. Price is at the 20 day SMA, which should offer some resistance. Again, 118.04 is the line in the sand.

GBPUSD – We have been looking higher but may not have been bullish enough given that Cable has rallied for 6 consecutive days (today would be the 7th). The pair is just shy of the February high at 1.9750, which should offer some resistance. We have labeled the rally from 1.9213 as a 3rd wave rally, so we are expecting some pullback with support at 1.9570 (prior 4th wave).

USDCHF – The USDCHF rally from 1.1877 to 1.2571 traced out 5 waves, meaning that the larger trend is up. Once 5 waves are completed, a correction should unfold in 3 waves. The correction that ensued was a complex one, known as a double zigzag (two a-b-c corrections connected with an X wave?labeled W-X-Y). Our confidence that a bottom is in place is improved due to the fact that the pair turned up from the 78.6% Fibonacci level of the 1.1877-1.2571 rally. The rally beginning now should eventually take out the January high at 1.2571.

USDCAD – This big decline is likely the C wave of an A-B-C decline from 1.1879. 1.1512 is where the C wave decline would equal the A wave decline. Support is reinforced by the confluence of channel support / 11/21/2006 high at 1.1470. RSI (daily) is nearing oversold territory and CCI (daily) is below -100. The pair is likely to chop lower to test the mentioned support near 1.1470/1.1512 before a major rally attempt.

AUDUSD – Focus remains on .8130 but the Aussie is nearing the latter stages of a long term rally. Daily RSI is oversold for the first time since November 2006. Similar to Cable, we see a corrective wave 4 followed by a thrust higher in wave 5 in order to complete the 5 wave bullish sequence that began at .7680. Support is estimated at .7970. For more, see

NZDUSD – We wrote yesterday “that we look for the NZDUSD to at least challenge .7116 (.6943 + (.7007 - .6833)) before a setback takes place.” The Kiwi has challenged this figure, rallying to .7126 this morning, one pip shy of the 1/26 high at .7127. A break above .7127 exposes the next level of chart resistance at .7202 (12/5/2005 high). Support should be strong at .7036. As long as price remains above .6991, the overall structure remains bullish for a test of .7200.