Euro's Fractal Form Warns of Reversal

-EURUSD hits resistance line above 1.40
-GBPUSD structure is a double three (two flats)
-AUDUSD, NZDUSD, and USDCAD patterns are mature

Euro / US Dollar

The EURUSD rally is stretched and due for at least a pullback and maybe, just maybe, a reversal. Wave structure favors a reversal sooner rather than later. The fractal nature of freely traded markets is on full display. That is, the form of the declines from 1.6000 and 1.4723 and their subsequent rallies are the same. The rally from 1.2886 is in 5 waves and wave 5 has hit and slightly exceeded the 1-3 line today. Evidence favors a turn. Of course, until there is evidence of one, going short is akin to playing Russian roulette. A drop beneath 1.3900 would signal a reversal opportunity.

British Pound / US Dollar

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. Cable has tested a former 4th wave extreme at 1.5730… and exceeded it. I wrote yesterday that “short term structure does not look complete. As such, the GBPUSD likely subdivides higher and makes its way to 1.6000.” The pair touched 1.5000 today and more importantly, the top of a parallel channel. rally from 1.3500 is taking the structure of a complex (w-x-y) correction. Similar to the EURUSD, I am expecting a reversal. Coming under 1.5755 would signal a reversal.

Australian Dollar / US Dollar

Despite the new high in the AUDUSD, nothing has changed regarding the long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much). Near term, RSI divergence along with a mature wave structure at multiple degrees of trend (3 waves up from .6000, 5 waves up from .6245 and 5 waves up from .6950) suggests that a turn is imminent.

New Zealand Dollar / US Dollar

The NZDUSD has soared to a new high. The rally from .5484 is in 5 waves therefore the risk of at least a pullback, potentially to .5829, is high. The advance from below .5000 is most likely an A-B-C (zigzag) and wave C would equal wave A at .6581. While upside potential remains, a drop below .6125 would signal a reversal.

US Dollar / Japanese Yen

The USDJPY is approaching 93.50…a break below there would completely clear the head and shoulders top that has formed since March. The triangle count that I have presented in recent days is still valid but becoming less probable by the day. At this point, remaining below 96.71 keeps the near term trend pointed down.

US Dollar / Canadian Dollar

RSI divergence at the low along with 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 an A-B-C correction that is nearing completion, a double 3 (two flats), or waves 1 through 3 of an impulse. At least a rally back to 1.1820 is expected. Above 1.1357 indicates a reversal.

US Dollar / Swiss Franc

The USDCHF has dropped below its March low of 1.1157. In other words, minimum expectations have been met for wave Y. A rally above 1.0927 would signal a reversal.

[I]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.

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