The dips in the EURUSD and GBPUSD following the US holiday are corrective in nature. Both the EURUSD and GBPUSD are expected to form short term bottoms and exceed 1.9850 and 1.5817 this week.
We remain bulls, maintaining that dips should be bought. The possibility remains that this rally will reach a new high within the next 3 to 4 weeks so longer term bulls should be patient. Even if a larger correction is underway from 1.6018, then a test of 1.60 is possible, if not probable, because the drop from 1.6018 is in 3 waves. This would be wave A of a flat and B waves of flats often retrace 100% of wave A. Near term, support should be strong just below 1.57 (the weekly low may actually be in place at 1.57 this morning).
STRATEGY: Bullish, against 1.5630, target TBD
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With each day that the USDJPY fails to break, the alternate becomes more attractive. Still, the potential for a sizeable decline in a 3rd of a 3rd wave exists as long as price is below 104.68. The alternate treats the consolidation since 105.70 as an X wave (probably a triangle), which will lead to a new high in wave Z before the larger decline resumes. A drop below 102.57 would inspire confidence the larger bearish bias.
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STRATEGY: Bearish, against 104.68, target TBD
The GBPUSD rally is unfolding as an impulse, which inspires confidence in our bullish bias that likely lasts for the next month and a half or so (see Pound Long Trade). The drop from 1.9850 is most likely wave 4 within a 5 wave advance from 1.9452 (it could also be a second wave in a series of 1st and 2nd waves). Support is likely strong near 1.97 (38.2% and congestion).
Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.
STRATEGY: Bullish, against 1.9714, target above 2.04
We mentioned last week that “the advance may well be the first leg in a larger, more complex upward correction but a sizeable decline is expected regardless (probably into parity).” With support holding at the confluence of the 38.2
% of .9647-1.0624 / 3/24 and 4/18 highs, we must respect the possibility that a larger correction is underway from .9647. To this point, both legs (from .9647-1.0624 and 1.0624-1.0216) are in 3 waves. This action has all the earmarks of a larger correction. As such, we are standing down from the bearish bias for now.
STRATEGY: EXIT SHORTS
We should know very soon whether or not we are completely wrong in our assessment of the USDCAD. We’ve been bulls and waiting for a buying opportunity. We were given that opportunity as the USDCAD dropped into support from the 78.6% of .9710-1.0324 at .9841 last week; a 100 + pip move off of the low is nice but a push through .9997 would inspire confidence in the bullish count. The pair must remain above .9710 for us to remain bulls.
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STRATEGY: Bullish, against .9710, target above 1.0324
The rally from .8952 is wave C of a large 5th wave diagonal that could extend to a measured objective just below 1.00 in coming weeks (.9936). There is no reason to fade this trend as long as price is above the trendline shown on the chart above.
Our bullish target at .7915 was hit last night, therefore we are now flat. The rally from .7536 is in 2 nearly equal legs, therefore it is possible that an important top will form soon and that Kiwi will retrace all of this rally. If we se evidence of this, then we’ll bring it to the attention of readers.
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[1] STRATEGY is a 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.