Dollar Should Continue to Fall Before Reversal Potential Comes to Forefront

  • Euro Test of 1.3680 Is Likely
  • Japanese Yen Reversing
  • British Pound Ready to Challenge 2.0000 Again
  • Swiss Franc Channel Breaks
  • Canadian Dollar Under 1.0600
  • Australian Dollar Testing .8390
  • New Zealand Dollar Breaks Above .7500


Commentary: The EURUSD bullish scenario is playing out but bulls must contend with potential trendline resistance from the 4/30 and 5/16 highs. That line is just above current price. It is possible that there are 5 waves up from 1.3392. Support should be strong at the wave 4 low of 1.3475. A strong rally in wave 3 should be then next move of consequence. 1.3392 must hold for us to remain bullish.

Strategy: Aligning with uptrend at 1.3475, against 1.3391, targeting above 1.3680.

Commentary: Coming under the confluence of the trendline drawn off of the 4/19 and 5/11 lows near 121.40 would signal a reversal. In this case, we would be bearish against the swing high (currently 122.13). The entire rally from 115.14 may be a double zigzag correction. The rally from 117.60 (wave Y) would equal wave W (115.14-119.84) at 122.30. This is extremely close to the actual high at 122.13. Probability is high that the USDJPY is headed lower from current price. We?ll watch the decline to gauge bearish potential.
Strategy: Bearish at 121.40, against 122.40, target TBD

Commentary: Similar to the EURUSD, Cable continues to exhibit impulsive characteristics to the upside. The GBPUSD is nearing potential resistnce from the 100% extension of 1.9676-1.9898 / 1.9732 at 1.9954. A rally through here exposes the 161.8% extension at 2.0091. Remember, we are expecting a high to be registered above 2.0131 before a multi-month top is put in place.
Strategy: Bullish now, against 1.9676, targeting 2.0131

Commentary: Trendline resistance (drawn off of the October 2006 and January 2007 highs) has capped gains just above 1.2300. With shorter term trendline support failing to hold yesterday, it is likely that the USDCHF is headed lower. Coming under 1.2197 bolsters this view. Ultimately, we are looking for a test of 1.1877.
Strategy: Bearish at 1.2196, against 1.2328, targeting 1.1877

Commentary: The USDCAD continues to drop below every measured objective for the end of large larger wave 3. Still, the next few weeks should see the USDCAD consolidate / pullback towards 1.0849/1.1036 (23.6% - 38.2% of 1.1825-1.0548) in wave 4 before wave 5 drops to a new low. We?ll watch the form of the correction that unfolds so that we can align with wave 5 lower.
Strategy: None

Commentary: We have maintained that “the break through short term trendline resistance following the 3 wave correction from .8390 sets the stage for a re-test of .8390 (and likely break above in a 5th wave).” Price is right at .8390 and exceeding this level satisfies minimum expectations for the end of wave 5. However, wave 5 is likely to extend much higher. Measured objectives for the end of the rally from .8162 are at .8591 and .8726.
Strategy: Bullish now, against .8162, targeting a break above .8390

Commentary: Kiwi has been on a tear. We wrote last week that “similar to the Aussie, we are expecting a break above .7491 in a 5th wave.” This break has happened and the NZDUSD trades north of .7500 for the first time since June of 1982. The chart above shows an extended first wave from .5927, and the rally from .7237 is the 5th wave. A potential terminus is the resistance line shown above, near .7640.
Strategy: None