Euro Consolidating at 2 Year Highs

• Euro Consolidates above 1.3400
• Japanese Yen Continues South
• British Pound Challenges 1.9800
• Swiss Franc Resistance Intact
• Canadian Dollar Fresh Highs
• Australian Dollar Content With .8250
• New Zealand Dollar Hits .7300

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.” However, a 5 wave decline from 1.3439-1.3338 followed by a 5 wave advance from 1.3338-1.3453 clouds the near term picture. The overlapping structure from the 3/26 low at 1.3254 suggests that an ending diagonal is forming. If this is the case, then a turn lower is nearby.

USDJPY – The clear 5 wave rally from 116.37 sets the stage for more gains but the confluence of the 61.8% of 122.17-115.14 / monthly R1 at 119.48 may be difficult for bulls to overcome. If this level is cleared, then the bullish bias is that much stronger. The risk reversal rate on 1 month options is increasing from its most depressed levels since March 2004. The USDJPY bottomed at 103.40 then after having fallen from 112.30. The ensuing rally saw 114.90 in a little less than 2 months time.

GBPUSD – The 5 wave advance from 1.9589 appears complete with the 1.9800 figure proving formidable as resistance. A period of consolidation / softness is expected before another impulsive rally unfolds. 1.9703 should be solid support. However, the triple top and shooting star on the weekly chart urges caution and suggests that a major top is forming. Coming under 1.9589 negates the near term bullish outlook (under 1.9671 would be the first indication that this rally will be fully retraced) and brings the ‘top forming’ scenario back to the forefront.

USDCHF – From yesterday, “The clear ‘5 up’ extended to 1.2281 but the USDCHF has slipped to the 61.8% of 1.2122-1.2281 at 1.2183 – and lessened our confidence in the USDCHF bullish outlook. Still, a bullish outcome is possible as long as price remains above 1.2122.” The USDCHF has rallied and found support before 1.2122 yesterday, keeping the bullish structure intact. A rally above 1.2281 bolsters the outlook for higher prices.

USDCAD – From yesterday – “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.” The USDCAD closed below the line yesterday and the trend is clearly lower. Former reaction lows at the 12/20/2006 low of 1.1430 and the 11/28/2006 low of 1.1286 are potential support. Be wary of getting too bearish here though as the decline from 1.1635 may be an ending diagonal that will be fully retraced before the next leg down.

AUDUSD – The AUDUSD continues to rally impulsively but we maintain that the rally is in its latter stages. Daily oscillators (CCI and RSI) are overbought and divergent with recent highs. Also, the break that occurred at .8000 was from a triangle and triangle breakouts are terminal (meaning that they are eventually retraced). The daily chart below shows the triangle (a-b-c-d-e) and the 5 wave rally that has ensued and RSI. The rally has extended to monthly R1 today, .8279, which is a potential reversal point. The next level is not until R2 at .8410.

NZDUSD – 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 (41st week ended on April 6th). The long term rally and decline is in Fibonacci proportion this week. Since this is the 42nd week (68/42 = 1.618), the odds of the NZDUSD putting in a significant top this week are high. Monthly R1 is a possible reversal point at .7327. Near term, it looks like the NZDUSD is tracing out an ending diagonal in a 5th wave from .7082 – these patterns lead to violent reversals.