EURUSD Heads Lower - Decline Could Extend

  • Euro Breaking 20 Day SMA
  • Japanese Yen 119.75 Remains Supportive of USDJPY
  • British Pound Digests Gains
  • Swiss Franc Breaking Trendline
  • Canadian Dollar 1.1000 Support
  • Australian Dollar Challenges .8300
  • New Zealand Dollar Remains In Wedge

EURUSD - The subdivisions of the decline from 1.3627 exhibit impulsive characteristics and could be the beginning of a 3rd wave down (or C wave). The bearish structure is intact with price below 1.3619 and potential short term support is at the 100% extension of 1.3680-1.3533/1.3627 at 1.3480 and the 161.8% extension at 1.3389. A turn higher from 1.3480 would leave to equal legs from 1.3680, which would possible lead to a new high. If the decline stretches to 1.3389, then probability is high that a multi-week (maybe multi-month) top is in place at 1.3680. Trendline support drawn off of the 3/9 and 4/9 lows is giving way and price is now below the 20 day SMA (1.3580). The short term pattern is also a head and shoulders reversal and would be completed on a break below 1.3533.

USDJPY - The USDJPY continues to hold above support (former resistance) from the 4/16 high at 119.84. As mentioned yesterday “a support line from the 4/25 and 5/1 lows keeps us looking higher for now. A break of this support line would be bearish and give scope to additional erosion to the 119.00 figure (5/1 low at 119.07).”

GBPUSD - The rally from 1.9841-1.9974 is impulsive and the decline that has followed is corrective. This indicates that Cable is headed higher (as long as 1.9841 holds). Resistance is near the intersection of the former 2 month supporting trendline and line drawn off of the 4/18 and 5/1 highs. This line is near the 100% extension of 1.9841-1.9974/1.9913 at 2.0046. Given the implications of US Dollar COT positioning (discussed yesterday at selling the buck at this point seems a risky proposition. GBP strength is likely better played against the euro.

USDCHF - “The longer term wave structure is bullish as the decline from 1.2571 is a double zigzag (inverse of the EURUSD rally). A longer term inverse head and shoulders pattern (May 2006, December 2006, April 2007) is also visible.” We have been waiting for a daily close above the resistance line drawn off of the 2/12 and 4/9 highs, which held last week, before getting aggressively bullish. Today might be that day. The intraday price action is bullish with a corrective decline from 1.2187 giving way to an impulsive looking rally.

USDCAD - We mentioned yesterday that the “the USDCAD may launch an assault on the 1.1000 figure before a corrective rally unfolds.” This has happened this morning with the pair falling to 1.1005. 1.1000 is also the 261.8% extension of wave 1 (1.1879-1.1562)." With a measured objective at 1.1000, deeply oversold daily RSI, and ATR declining (from 79 to 72) since 4/30, it is likely that the USDCAD is getting close to an intermediate term low. A 4th wave correction will bring the USDCAD up to Fibonacci resistance near 1.1199-1.1318 before a 5th wave completes the bearish pattern below 1.0927.

AUDUSD - We wrote yesterday that “the decline from the top is in a corrective 3 waves - thus we are suspending our bearish forecast. The pair has pushed through the midpoint of the short term channel (see chart below), which gives scope to a test of channel resistance near .8300 (more bullish potential exists on a break above .8300).” The AUDUSD has been turned back from the .8300 figure but the structure remains bullish above .8242.

NZDUSD - The decline from the top (.7491) takes on the shape of a wedge and is bullish. A break through the top of the wedge near .7400 would signal that price is likely headed for a re-test of .7491. Friday?s candle is a hammer (bullish reversal) and supports this outlook. Last week?s low needs to hold (.7330) for bulls to remain in control.