Dollar Puts In 4 Month Low - Reversal or Extension?

• Euro Terminal Thrust From Triangle
• Japanese Yen 4th Wave
• British Pound Trendline Support
• Swiss Franc Longer Term Turn?
• Canadian Dollar at Critical Juncture
• Australian Dollar Hovers Near Top of Range
• New Zealand Dollar Holding Above .7200

EURUSD – The EURUSD is playing out as expected. “We are looking for a significant top due to the 7 wave rally from the November 2005 low at 1.1640. 7 waves is really just two 3 wave structures linked together by an X wave. This is known as a double zigzag and is a countertrend movement. In the short term, a triangle appears to be forming from the 1.3413 high, thus we are looking for a terminal thrust higher following completion of the triangle.” The terminal thrust higher that we were looking for is in progress. It appears that the EURUSD needs to register one more high (above 1.3439) in order to complete a 5th wave. Resistance on a break higher is at the March 2005 high of 1.3483. It is important to keep in mind that we are expecting a reversal following one more high as triangles lead to terminal thrusts.

USDJPY – Nothing has changed regarding the USDJPY as the recent consolidation looks like a 4th wave correction. “The hourly chart suggests that 119.11 will be exceeded in order to complete the rally from 116.38. We are looking for a small degree 5th wave to challenge the 61.8% of 122.20-115.15 at 119.51. Regarding the bigger picture, we still think that the decline to 115.15 was the first leg of weakness in a larger bearish sequence. The corrective nature of the rally from 115.15 favors this view. As such, we are looking for a top and reversal close to 119.50.” Coming under 118.39 would indicate additional bearish potential.

GBPUSD – We are still looking for a deeper decline to challenge at least the area of prior 4th wave support at 1.9545. The reason for our bearish view is the appearance of the completion of 5 waves up from 1.9182. However, the decline from the top (1.9822) is in 3 waves (which is corrective) and Cable has held trendline support. A break below the confluence of trendline support / 1.9668 is the trigger for a decline to 1.9545 (at least). The technical picture remains cautiously bullish above this 1.9668. CCI has rolled over from 100 – which supports a reversal.

USDCHF – The longer term bullish bias is intact as long as price remains above 1.2030. The short term subdivisions are not clear but the bigger picture is bullish since the entire decline from 1.2575 can be classified as a double zigzag. The next short term hurdle for bulls is the 3/30 high at 1.2242. 1.2076 should be strong support. Minor support is at yesterday’s low of 1.2175.

USDCAD – There are 2 assumptions two scenarios that we are working with. There are 5 waves down from 1.1828 but that may be the end of a correction (an A-B-C from 1.1879) rather than the beginning of an impulsive move. The declines continue to exhibit impulsive characteristics, but a clear break of parallel channel support is required before we can get aggressive. If the next larger move is down, then 1.1640 should act as solid resistance.

AUDUSD – We still maintain that the AUDUSD is nearing the latter stages of a long term rally. Daily RSI continues to hover near the 70 overbought line for the first time since November 2006. The rally from .7680 is in 5 waves which could be the end of the 5th wave in the 5 wave bullish sequence that began in April 2001 (see chart below). If this is the case, then we are near a major top and the next big move is towards .7000. Divergence with RSI at the recent high increases confidence in the call for a top. .8030/40 is initial support. Weekly RSI has reached overbought for the first time since November 2004.

NZDUSD – Kiwi is in the same position as the AUDUSD. The rally from .6720 is now in 5 waves and thus the form is complete so a top and reversal should soon follow. However, there is always the risk that the 5th wave extends. Still, daily oscillators are divergent with the recent high so we believe that the reversal scenario is a valid one. Daily CCI has crosses below 100. There is an interesting time relationship as well. The rally from the May 2004 bottom to the March 2005 high lasted 44 weeks. The decline from the March 2005 high to the June 2006 low lasted 68 weeks. The rally from the June 2006 low has lasted 41 weeks (so far). Kiwi may be exhibiting a longer term rhythm with the 40-odd week rallies but the long term rallies and declines are also in Fibonacci proportion regarding time as 42/68 = .618.