The resilience of contrarian traders is being tested in FX as the US dollar is having trouble holding onto gains. However, a series of lower highs and lower lows in the EURUSD is indeed Euro bearish (US dollar bullish).
[B]Euro / US Dollar[/B]
The EURUSD rally from 1.2886 is in 5 waves. Wave 5 slightly exceeded the 1-3 line Friday and price has pulled back thus a top could be in place. Price has dropped below 1.3858, which bolsters the reversal prospects. I want to point out the similarities between the early stage of the decline that began in March and the decline from 1.4050 to this point (at the beginning of larger declines, price action is choppy).
[B]British Pound / US Dollar[/B]
There is no change to the bigger picture pattern in which wave 4 within the 5 wave decline from the 2007 high is nearing completion. Strength has been contained by the top of a parallel channel thus far. The rally from 1.3500 is a complex (w-x-y) correction. Although the rally is extended, there is no sign of a top yet. Coming under 1.5850 would favor additional weakness.
[B]Australian Dollar / US Dollar[/B]
Nothing has changed regarding long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much). RSI divergence along with mature wave structure at multiple degrees of trend (3 waves up from .6000, 5 waves up from .6245 and 5 waves up from .6950) favors a reversal. Like the GBPUSD, there are multiple warning signs that the pair will top but no evidence of a top yet. Coming under .7740 would favor continued weakness.
[B]New Zealand Dollar / US Dollar[/B]
The NZDUSD rally from .5484 is in 5 waves therefore the risk of at least a pullback, to at least .5829, is high. RSI divergence on the daily favors bears as well. You probably do not want to stand in front of a train but be on the lookout for a reversal.
[B]US Dollar / Japanese Yen[/B]
Failure to clear 93.50 and the rally above 96.75 shifts focus back to the triangle count (shown above…red line is 200 day SMA). Under this count, wave d (triangles unfold in 5 waves (a-b-c-d-e)) of a B wave triangle is underway towards 98-99.
[B]US Dollar / Canadian Dollar[/B]
Potential support from a line extended from the 4/16 and 5/8 lows indicates reversal potential. Structurally, the decline from 1.3068 is in 7 waves. This decline could be counted in several ways, but the near term implications are bullish for nearly all counts. The decline could be an A-B-C correction that is nearing completion, a double 3 (two flats), or waves 1 through 3 of an impulse. A rally, back to at least 1.1820, is expected to begin soon. The 50% of the rally from .9055 to 1.3068 is at 1.1061 and is potential support.
[B]US Dollar / Swiss Franc[/B]
The USDCHF has dropped below its March low of 1.1157. Minimum expectations have been met for wave Y and very short term charts show what looks like a 5 wave rally from 1.0810 to 1.0950. Unless that rally is wave c of a flat (which is possible), then a bottom is in place.
Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.
Please send comments about this report to <jsaettele@dailyfx.com>