Dollar Probes Downside - Reversal Evidence Mounting

• Euro Back to 1.3400?
• Japanese Yen 118.50 In Sight
• British Pound Ready for Another High
• Swiss Franc Short Term Trendline
• Canadian Dollar Towards Longer Term Channel
• Australian Dollar Takes Out .8100
• New Zealand Dollar Challenging .7200

EURUSD – The EURUSD has rallied off of the 1.3262 former resistance level (now support), but as long as 1.3413 holds as resistance, we’ll continue to favor the downside. There is plenty of bearish evidence on the daily. RSI is divergent at the recent high and just declined below 70. CCI is above 100 and a decline below 100 would signal a reversal. Regarding the longer term structure, it is appropriate to treat the entire rally from 1.1640 as a 3 wave correction. There are 7 waves higher – but 7 divides into two 3 wave corrections linked together by an X wave. This is known as a double zigzag correction and is labeled W-X-Y. We are looking lower. It is possible that the rally extends higher but the oscillator action on the daily gives us reason to be skeptical.

USDJPY – It looks more and more likely that we will see a break above 118.50 and test the level where the rally from 115.76 would equal the 115.15-118.50 rally – at 119.12. This level is reinforced by the 61.8% of 121.66-115.15 at 119.16. Still, when viewed on an hourly chart, the structure of the rally from 115.76 is overlapping and corrective, which suggests that the entire rally should be retraced.

GBPUSD – We are still looking for one more high to be registered above 1.9729 before a big turn lower. We are looking higher in order for a 5th wave to complete a 5 wave bullish sequence that began at 1.9243. Wave 1 would equal wave 5 at 1.9823. The bullish structure is strong above 1.9569.

USDCHF – No change – “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.” Continue to favor the uspide as long as this short term trendline holds (see chart below).

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. A rally through 1.1679 (3/13 low) suggests additional bullish potential.

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. The AUDUSD pushed above .8096 yesterday to register a new high at .8111 in what may be a 5th wave. Coming under .8027 signals a reversal.

NZDUSD – Kiwi continues to rally and the break above .7162 exposes the next level of chart resistance at .7202 (12/5/2005 high). The rally is certainly getting extended as evidenced by the risk reversal rate on 1 month options (call price – put price) is the highest since November 2004. Kiwi topped out near .7300 then. Coming under .7083 indicates bearish potential (possibly a major reversal). Divergence with oscillators on the daily suggests reversal potential as well. The chart we are showing this morning is the Kiwi daily chart with the risk reversal rate. An extreme RR rate leads to a reversal.