Dollar Looks Bearish To Start the Week

  • Euro 1.3410 Key to Bulls
  • Japanese Yen Ready to Reverse
  • British Pound Tight Range
  • Swiss Franc Channel
  • Canadian Dollar Pierces 1.0800
  • Australian Dollar Remains Under .8200
  • New Zealand Dollar ST Resistance at .7314

Commentary: With the decline from the top looking corrective (as opposed to impulsive), and with the a and c legs of the correction close to equal (218 and 199 pips), there is potential for a sizeable rally as long as price turns higher from close to current levels. Although reward to risk favors longs here in the short term, we are wary of getting too aggressively bullish longer term due to the extreme sentiment (USD bearishness/Euro bullishness), as evidenced by the COT report. The favored wave count does indicate one more high above 1.3680 in a 5th wave before an impulsive decline occurs. We are willing to take a bullish stand against the swing low (1.3410) for an eventual retest of 1.3680. Intraday bullish divergence with oscillators on the hourly favors a turn higher as well.
Strategy: Bullish against 1.3410, targeting 1.3680


Commentary: We wrote Friday that, “in summary, we expect a new high (above 121.86) followed by a reversal.” The USDJPY pushed to 121.88 before slipping back. There is no sign yet of a reversal but we expect a decline to at least the former 4th wave near 120.85 (as long as 121.88 holds). Additional bearish potential is on a break below the potential support line drawn off of 117.60 and 119.46. That line is near 120.72 currently and increases about 12 pips per day (see chart above). Potential resistance is at the line drawn off of the 5/4 and 5/23 highs near 122.10 (increases about 18 pips per day). The entire rally from 115.14 may be a double zigzag correction.
Strategy: None

Commentary: Cable is little changed and our outlook is unchanged. The turn higher from just below 1.9700 left two approximately equal legs from 2.0131 (2.0131-1.9841 = 290; 1.9997-1.9676 = 321). Bulls were thwarted at the line drawn off the 5/1 and 5/9 highs but the 3 wave decline from 2.0131 is the dominant pattern and is bullish. We mentioned yesterday that some consolidation should take place in a 4th wave, so the next move should be in a small 5th wave above 1.9892. This will complete 5 waves up from 1.9676 and we would look to align with the uptrend on a corrective decline.
Strategy: Waiting for the scenario described above to play out for an opportunity to get bullish against 1.9676.

Commentary: The longer term outlook for higher prices is intact, although the USDCHF may endure a period of softness following the rejection at the 200 day SMA. Potential support is at the confluence of the 61.8% of 1.2124-1.2230 / channel support near 1.2203. Former resistance at 1.2221 could act as support also. In fact, the decline from 1.2329 would equal the 1.2329-1.2239 decline at 1.2222. This intersects with channel support early next week. High reward/risk bullish opportunities come to the forefront at channel support.
Strategy: Establishing bullish position between 1.2200 and 1.2230, against 1.2124, targeting new highs (above 1.2329)

Commentary: The USDCD is close to putting in an intermediate term low. A measured objective for the end of this small degree 5th wave is at the 161.8% extension of 1.1168-1.0965/1.1061 at 1.0733. Expectations are for a larger 4th wave to bring price back near 1.1000/1.1168. Without concrete evidence of a low in place, and the fact that the upside is countertrend, we prefer to watch how the correction unfolds and look to get bearish for the eventual 5th wave decline to a new low. The corrective move higher is likely to unfold as a flat or a triangle (since the 2nd wave was a sharp correction).
Strategy: None

Commentary: We maintain that a C wave decline is underway towards the 100% extension of .8390-.8168/.8349 at .8127. Bears are in control as long as .8265 remains intact. .8127 would be where wave C would equal wave A. A break under .8168 would support our view. The AUDUSD is testing support right now at the 55 day SMA (.8190).
Strategy: Bearish against .8265 targeting .8127

Commentary: We maintain that a C wave lower is unfolding from .7403. Wave C would equal wave A at .7161. .7314 is short term resistance but the bearish structure remains intact below as long as price is below .7403. In the 5 wave rally from.6719 to .7491, the 5th wave is extended. 5th wave extensions are sometimes fully retraced so there is the possibility that Kiwi does not find solid support until .7082 (close to the 50% of .6719-.7491). Kiwi is also testing its 55 day SMA (.7261).
Strategy: Bearish against .7403 targeting .7161 and .7082.