Dollar Treads Water - Beware of a Break

• Euro Rejected at Fibo and Trendline
• Japanese Yen Turning Again
• British Pound Ranging
• Swiss Franc Reverse Head and Shoulders
• Canadian Dollar Turning
• Australian Dollar Continues Corrective Rally
• New Zealand Dollar .6970 Key

EURUSD – The EURUSD rally has extended further than anticipated but the pair has turned down from the confluence of the 61.8% fibo of 1.3262-1.3072 / short term trendline at 1.3188. The current level is critical (1.3140). This was previous resistance and is now proving as support. A sustained break below 1.3140 returns confidence to the bearish case that we have focused on recently. 1.3188 needs to hold in order to keep the immediate bearish structure intact and 1.3262 is critical to the intermediate bearish outlook. Reinforcing the bearish outlook is the head and shoulders pattern on the hourly. Coming under 1.3072 completes this pattern and shifts focus to 1.2865.

USDJPY – As mentioned here yesterday, a rally to 117.63 / 118.00 (117.98 is where the rally from 116.20 would equal the 115.15-116.91 rally) would possibly complete a 4th wave correction and give way to another bout of weakness to below 115.15. However, the pair may top out closer to current price. The 115.15-116.91 rally is wave A in a 3 wave correction and the decline to 115.53 this morning was wave B. The current rally is wave C and would equal wave A at 117.31 (close to current price). Hourly RSI is nearing overbought territory so look for the pair to roll over close to 117.31/63. Coming under 116.91 increases confidence in a 5th wave decline to below 115.15.

GBPUSD – We still contend that a small degree wave 4 likely ended at 1.9361 yesterday. 1.9361 is the 38.2% of 1.9655-1.9183 and the correction from 1.9183 is in 3 waves with waves A and C of that correction roughly equal (1.9183-1.9307 = 124 pips : 1.9229-1.9361 = 132 pips). Price should come under 1.9183 with 1.9361 resistance remaining intact. A break below 1.9183 may test the 61.8% of 1.8515-1.9915 at 1.9055. However, a decline below 1.9183 satisfies minimum expectations for the 5th wave. Since GBPUSD is in a wave 5 (compared to EURUSD in a wave 3), expect a correction back to 1.9360’sh once a wave low is established.

USDCHF – Little is changed regarding the USDCHF. We still favor the bottoming scenario with risk at 1.2109. The next move of consequence should be in a wave C rally (inverse of EURUSD) to above 1.2575. A push through Friday’s high at 1.2264 bolsters the bullish scenario. Daily CCI has increased from below -100, which signals a reversal (higher). A reverse head and shoulders on the hourly gives scope to a rally attempt from close to current price.

USDCAD – The long term bearish bias remains intact. The decline off of the top of the 2 year channel combined with the outside monthly reversal favor the downside. Ultimately the decline from 1.1879 should come under 1.0927 to complete a 5th wave. The rally from 1.1564 has retraced 78.6% of the 1.1879-1.1564 decline in a 2nd wave. The next few weeks should see price come under 1.1564 and possibly even 1.1250-1.1326 – which marks the 138.2% to 161.8% extensions of 1.1879-1.1564 / 1.1761. 1.1880 is critical resistance. A push above, while not expected, targets the 1.2000 figure. Coming under yesterday’s low at 1.1731 bolsters the bearish outlook.

AUDUSD – The AUDUSD wave 4 correction that we wrote about yesterday has extended to the 50% of .7895-.7680 at .7787. Price must remain below .7840 in order to keep the bearish structure intact but the 61.8% at .7812 should provide formidable resistance. The upside looks limited at this point and price should come under .7680 in a 5th wave decline before a larger upward correction takes place.

NZDUSD – Kiwi has also corrected recent weakness from .6720 in a 4th wave. The 50% of .7036-.6720 at .6877 has held as resistance so far but the 61.8% at .6914 may be in play as the pair still looks bid. Still, the next move of consequence should be below .6720 in a 5th wave decline. The bearish structure remains intact as long as price remains below .6970.