Dollar Gains Should Extend, Especially Against European Currencies

  • Euro Short Term Objective at 1.3264
  • Japanese Yen 122.13 Is Critical
  • British Pound Digests Losses
  • Swiss Franc Breakout
  • Canadian Dollar Wave 4 Towards 1.0800
  • Australian Dollar Short Term Bearish Opportunity
  • New Zealand Dollar Potentially Significant Reversal

Commentary: The inability to hold above the 6/1 low at 1.3392 and the break under the trendline drawn off of the October 2006 and January 2007 lows indicates additional bearish potential. The next support level is the 100% extension of 1.3680-1.3392/1.3552 at 1.3264. Former support at 1.3392 should be solid resistance now. The pair has stalled at the 100 day SMA, a break under here would be significant as the EURUSD has traded north of this moving average for all of 2007. Even if the pair does continue lower in the next few days, we prefer to wait for the larger 3 wave setback before aligning with the downtrend.

Strategy: Waiting for a 3 wave setback in order to align with the downtrend

Commentary: We remain bearish against 122.13 but the rally from 120.75 has been sharp and is close to the 78.6% of 122.13-120.75, so the pair needs to roll over soon. We are anticipating a move lower in a 3rd wave, below 120.75, towards 119.50. In summary, as long as 122.13 remains intact, we are bearish.
Strategy: Bearish Now, against 122.13, target TBD

Commentary: Cable has broken under the May low at 1.9676, negating the bullish setup and indicating additional bearish potential. More importantly, the pair has dropped under a support line that dates to April 2006. The next potential support level is the 100% extension of 2.0131-1.9676/1.9964 at 1.9509. A drop under 1.9621 will complete 5 waves down from 1.9964 and give scope to a corrective bounce that can be used to align with the downtrend.
Strategy: Look for a drop to a new low to be followed by a 3 wave correction - and an opportunity to align with downtrend

Commentary: The daily close above the trendline drawn off of the October 2006 and January 2007 highs instills confidence in the bullish bias and a measured objective is at the 100% of 1.1993-1.2329/1.2145 at 1.2481. As mentioned Friday, this line is also the neckline from a 13 month head and shoulders pattern. From an EW perspective, the rally from 1.2145 is the 3rd of a 3rd wave rally, which often produce the most powerful moves. A rally through the mentioned 1.2481 level gives scope to an a confluence of Fibonacci targets at 1.2687/89 (100% of 1.1877-1.2571/1.1993 and 161.8% of 1.1993-1.2329/1.2145). These are targets that should be reached within 2 to 4 weeks.

Strategy: Bullish now, against 1.2145, targeting 1.2500 and 1.2700

Commentary: The 4th wave correction of the 1.1825-1.0548 decline is underway. The projected end for wave 4 is 1.0849-1.1036. 1.0849 seems more likely since that level intersects with channel resistance in 11 trading days. Corrections often unfold in a-b-c form, so we are treating the 1.0548-1.0711 rally as wave a in an a-b-c correction. Wave b may be underway now and could push into the 1.0583-1.0610 area. We are bullish now, against 1.0548, targeting 1.0800.

Strategy: We are bullish now, against 1.0548, targeting 1.0800.

Commentary: We wrote here on Friday that “the decline from .8476 is in only 3 waves, which is corrective, so the trend remains bullish above .8365. However, RSI has declined from overbought on intraday charts and exhibits divergence on the daily, so it seem more likely that this is the beginning of a deeper correction. Yesterday?s long wick and key reversal day also favors the downside. Short term bearish opportunities exist as long as price is below .8443.” A small c wave is expected to unfold from .8447 (or close to it). Measured objectives are at .8336 and .8267 (100% and 161.8% extensions of .8467-.8365/.8447). The longer term structure remains bullish though.

Strategy: Bearish now, against .8467, targeting .8353 and .8300

Commentary: Kiwi has made a nasty reversal following Friday?s push through .7600. Very short term (15 min chart), there are 5 waves down from the top (.7637), which indicates additional bearish potential. We will look to align with bears on a setback at .7535 and are targeting the May low at .7238. .7637 is the line in the sand.

Strategy: Looking to get bearish at .7535, against .7637, targeting .7238.

*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend. JTRENDLT is the longer term trend and uses the last 4 weeks of price data. JTRENDST is the shorter term trend and uses the last 5 days of price data. An example is below. Blue bars denote bullish trend and red bars denote bearish trend. The chart below is the EURUSD weekly chart.