A long term USD rally is underway. Expectations are for the EURUSD to reach the mid 1.40s before finding support, and the GBPUSD 1.85. The weakest currencies will probably be the commodity currencies; wave structure suggests that these currencies have put in multi-year tops (USDCAD bottom, AUDUSD top, and NZDUSD top).
We wrote yesterday that “coming under 1.5612 would suggest that a top is in place.” The EURUSD has dropped through this level (and quickly), therefore we are looking for short opportunities. The spike to 1.5904 appears to have completed the entire rally from 1.4438. We view the decline from there as the start of a larger 4th wave that should bring price back to 1.4650 (midpoint of the triangle that the EURUSD broke from). Under this count, the decline from 1.5784 is wave iii of 3 of A.
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STRATEGY: Bearish, against 1.5784, target TBD
The up, down sequence from 95.72 is counted as waves A and B from 95.72. Expectations are for wave C to exceed 100.44 and test the area of the former 4th wave in the 101.40-103.60 zone. The 100% extension of wave A (where wave C would equal wave A) is at 102.38. Risk on longs can be moved to 97.66.
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STRATEGY: Bullish against 97.66, target 102
Keep in mind that the drop from 2.1160 to 1.9337 was in 5 waves. We view this decline as wave (A) in a larger A-B-C correction. Wave (B) was a clear 3 wave countertrend rally that ended just shy of the 61.8% level of A. Wave © is underway now. Specifically, wave 1 of © is underway now. We will remain bearish until we see 5 waves down from 2.0396. A short term target is 1.9540 (1 to 3 days). The longer term (8 to 12 weeks) target is near 1.8500.
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STRATEGY: Bearish, against 2.0271, target 1.9540
We had thought that “one more low was required (below .9647) before a sizeable rally developed but also mentioned that a rally through 1.0051 strongly indicates that a low is in place at .9647.” We know now that the latter scenario played out and therefore favor the idea that a low is in place at .9647. Like the EURUSD (but inverse), the rally from .9647 is probably a larger 4th wave. Expectations are for the rally to reach the 1.0730-1.1121 zone.
STRATEGY: Bullish, against .9868, target 1.07
The break above 1.0197 negates our bearish bias. Therefore, what was previously our alternate count is now preferred. The drop to .9710 completed an expanded flat from the December high at 1.0248. It is highly probably now that a multi-year low is in place at .9055. Objectives for the bull move that began at .9710 are near 1.09 and 1.1600. We will look for long entries going forward.
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Given the deterioration of the Aussie in recent days, our best count labels the rally to .9470 as a truncated 5th wave. Confidence in this count would be bolstered if the drop from .9470 unfolds in 5 waves. This would also make it likely that a multi-year top is in place.
[B]Our confidence in the bearish count that first proposed last Friday is growing as the NZDUSD has weakened. We view the rally from .6639 to .8215 as a large expanded flat (A-B-C). Wave C of that rally is an ending diagonal (waves 1-2-3-4-5 are overlapping and each subdivide into 3 waves). Bigger picture, .8215 may be the end of wave B from .5927. Price is expected to eventually come under .5927. We will discuss shorter term targets as the pattern evolves. Risk on shorts can be moved to .8173.[/B]
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[B]STRATEGY: Short, against .8173, target TBD [/B]
[B]Tell us what you think about this report: contact the strategist about the article at <[email protected]>[/B]
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[1] STRATEGY is a quick summary of our best technical ideas. The ideas are subjective and are subject to change everyday although trades are typically held for at least a few days and sometimes a few weeks or more. Ideas are also included for crosses throughout the week; these are published at separate articles at DailyFX.