Dollar Gets Footing and Looks to Extend Gains

• Euro Rolls Over
• Japanese Yen Bearish (USDJPY Bullish) Short Term Pattern
• British Pound Decline Remains Corrective
• Swiss Franc Decline (USDCHF Rally) Is Impulsive
• Canadian Dollar Chopping Lower
• Australian Dollar Approaches Trendline Support
• New Zealand Dollar Decline Corrective So Far

EURUSD – The reversal that we have been looking for may be underway (see for more). Last week’s candle was a shooting star and daily RSI has rolled over from above 70. The EURUSD has come into initial support at 1.3560. Additional bearish potential increases with 5 waves down and so far there are only 3 waves down from 1.3637. If the larger trend has reversed, then we should see some consolidation/bounce in a 4th wave before a new low under 1.3549. 1.3586 is key resistance.

USDJPY – The USDJPY price action is bullish above 118.22. The 5 wave rally from 117.60 to 118.98 indicates that the larger trend is up and is most likely the first wave in a new 5 wave rally. The sharp correction to 118.22 is wave 2, and a rally above 118.98 would confirm that wave 3 up is underway. Measured objectives for wave 3 are at 119.60 and 120.45 (100% and 161.8% extensions of 117.60-118.98 / 118.22). Again, 118.22 needs to hold as support in order for the most bullish count to remain at the forefront.

GBPUSD – The doji made on 4/18 along with divergent RSI on the daily gives scope to a reversal. Still, the decline from the top is corrective, which leaves GBPUSD open to another high. Coming under 1.9972 indicates that a deeper correction is taking place. A measured objective for would be at 1.9921/24, which is the confluence of the 38.2% of 1.9589-2.0131 / 100% of 2.0131-1.9984 / 2.0068.

USDCHF – We mentioned Friday that “yesterday’s hammer at critical support keeps focus on the bullish reversal scenario. In fact, there are 5 small waves up from yesterday’s low at 1.2000 (an important psychological figure). Support resides at 1.2037. The longer term turn wave structure supports a reversal (higher) as well. A rally above 1.2281 would give credence to this view and suggest that an important low is in place.” The next short term resistance level is 1.2150 and 1.2056 should be support.

USDCAD – The USDCAD may be forming a base from which to work higher. There is little doubt that the decline from 1.1825 is a 3rd wave. Therefore, any rally should be treated like a correction as a 5th wave decline will eventually take the USDCAD to lower levels. Initial resistance is the 4/19 high at 1.1309. The next support level is the 10/30/2006 low at 1.1176.

AUDUSD – Recent commentary stated that “daily oscillators (CCI and RSI) are overbought and divergent with recent highs. Also, the break that occurred at .8000 was from a triangle and triangle breakouts are terminal (meaning that they are eventually retraced). The daily chart below shows the triangle (a-b-c-d-e) and the 5 wave rally that has ensued and RSI. With daily oscillator action, an extreme risk reversal rate (1 month 25 delta options) and the Aussie at former longer term resistance, we are looking for a reversal.” A 5 wave decline from .8390 sets the stage for more downside action and we are bearish against the high (.8390) on a break of trendline support near .8310.

NZDUSD – Trendline support for Kiwi is not until about .7380 but the very short term wave count is bearish as there are 5 waves down from .7482 to .7428. This correction should be followed by another leg down with potential support at the mentioned trendline. We’ll watch the form of the decline in order to determine the proper course of action.