Dollar Decline Underway: How Far Will It Extend?

• Euro Retracing Losses
• Japanese Yen Probes 120
• British Pound To 1.9800
• Swiss Franc Turns
• Canadian Dollar Bottoming
• Australian Dollar Long Term Triangle
• New Zealand Dollar Bottoming

EURUSD – It looks like the 5th wave down (in a 5 wave bearish sequence that began at 1.3367) started at 1.3066. We are 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. 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. Only a rally above 1.3066 (Friday’s) high negates the near term bearish structure. 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.

USDJPY – The USDJPY appears to be tracing out a 3 wave zigzag correction. The decline from 122.21 to 120.10 would be the first of that 3 wave correction (wave A) and the bounce to 121.38 would be the second wave (wave B). A third wave (wave C) decline could extend to 119.26, which is where waves A and C would be equal. 119.26 is also the 38.2% of 114.43-122.21. Price closed below the 20 day SMA yesterday, which favors bears. 121.38 is critical resistance to the bearish case and the measured objective at 119.26.

GBPUSD – Cable has been extremely volatile lately, trading in a 268 pips range the last 4 days but closing prices have been from 1.9605 to 1.9670. We were looking for a C wave decline to 1.9316 but this morning’s impulsive advance negates that interpretation. Instead, the rally from 1.9537 is taking on the look of a wave C that will challenge the 100% extension of 1.9482-1.9750 / 1.9537 at 1.9805. We maintain that the GBPUSD is nearing a major top. In fact, that top could be in place at 1.9915. The decline from 1.9915 could be the first of a 5 wave bearish sequence and this bounce, which would end near 1.9805 would be the 2nd wave. Near term support is at 1.9620.

USDCHF – Due to the fact that we can count 5 waves up from 1.1880, it is possible that a countertrend move is already underway. The 5 wave rally from 1.1880 is likely the first wave of a larger 5 wave sequence thus the correction that is beginning now will be the second wave. Second waves often retrace a large portion of the first wave, so we are looking for a decline to extend towards the 61.8% of 1.1880-1.2575 at 1.2146. This level is also just above a series of lows from December and January. A decline below 1.2376 will be the first sign that this decline is underway. 1.2575 needs to hold as resistance. If 1.2575 is broken, then the wave from 1.2376 is still progress.

USDCAD – 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. While there is no evidence that a turn has occurred yet, a break below the 1/25 low at 1.1731 would strongly suggests that a top is in place. Very short term resistance is today’s high at 1.1841 but 1.1873 is key to any bearish stance.

AUDUSD – The AUDUSD rally has stalled at its breakdown point at the 1/10 low of .7760. The near term structure is unclear so we’ll focus on the 2 year triangle. Our longer term bias is to the downside to complete a wave E in the long term triangle (A-B-C-D-E). Alternating legs of triangles are often related by a Fibonacci ratio of .618. 61.8% of the C wave (.7991-.7014) is 604 pips and the top of wave E is .7982. Thus, we are looking for a decline to .7982 – 604 pips = .7378. Near term resistance is at the 61.8% of .7941-.7698 at .7848.

NZDUSD – Kiwi has 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). A rally above .6868 grants confidence to the bullish case. Daily oscillators are bearish with CCI below -100. A cross above -100 would indicate a reversal opportunity.