Forex Technical Update 09-11-2007

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London Commentary: There is no reason to change the outlook at this point for a new high (above 1.3852), especially considering that the pair nearly reached that level this morning. Very short term, there is risk of a larger pullback given the bearish divergence with RSI on the hourly. Still, the bias is bullish as long as price is above 1.3663.
New York Update: A slight retracement is in order for the EURUSD as the currency pair currently tests the 1.3838 resistance top. Expected downside barriers are surfacing at the 1.3777 previous resistance figure, with downside capping likely circa 1.3700 on any full retracements in the Asian session. Momentum indicators are supportive of the notion, moving lower from overbought signals. Comparatively, any upside potential would require a formidable close above the 1.3847 intraday high.
Strategy: Remain bullish, risk is at 1.3663, target above 1.3852

London Commentary: Near term, a small triangle has unfolded following the rally from 112.59. Look for a terminal thrust from the triangle to test the 61.8% of 115.63-112.59 at 114.47 before a top and reversal. The larger bearish bias is strong as long as price is below 115.63. We expect a drop under 112.59 following a top and reversal near 114.47.

New York Update: Pullbacks are warranted following the day?s rally off of the 113.50 support trendline. With the momentum stalling just shy of the 114.47 aforementioned resistance level, a leg lower would set the pair up nicely for the bearish turn. The downside potential would place the 113.83 previous resistance into play ahead of the 112.59 initial target. Any upside would be met by resistance at the 114.92 hourly low initially.
Strategy: Look to get bearish near 114.47, against 115.63, target below 112.59

London Commentary: We wrote yesterday that “we favor a drop below 2.0243 to complete a flat correction and then the strong rally. The bullish scenario is best served by this since the rally from 2.0243 takes on a 3 wave corrective form and is most likely a small wave b.” After dropping below 2.0243, Cable has turned higher and a third wave rally could be underway from 2.0235 after a series of 1 and 2 waves from 2.0043. The bullish objective is above 2.0654.

New York Update: With profit taking from the afternoon push higher, the GBPUSD is also expected to pare back during the off hours as oscialltors remain supportive of the notion. As a result, we look for midterm support emergence at the 2.0258 trendline with additional support at the 2.0232 helping to cap any real pullbacks. Upside directional bias is retained on a confirmed breach of the intraday high of 2.0335, opening scope for a move higher to the 2.0375 trendline ceiling.

Strategy: Remain bullish, move risk to 2.0235 (from 2.0159), target above 2.0654

London Commentary:[/B] The count that calls for a new low (below 1.1815) continues to track well. Continue to favor the downside and a break of 1.1815. A bearish objective is at 1.1793 (161.8% extension of 1.2215-1.1993/1.2151). We wrote yesterday that “resistance should be strong up to 1.1925 (former congestion). The next day could see some choppy trading take place in the wave 4 position before a test of 1.1815 and lower. Still though, favor the downside.” Wave 4 that we were expecting to take place may be complete at 1.1895.

New York Update: Seemingly consolidating, the USDCHF currency pair is holding steady just below the 1.1900 resistance trendline. As a result, withmomentum indications hovering into overextension, we look for a pullback to come into line with our bearish outlook. Initial support is opening up at the 1.1850 support figure before we decline to 1.1795.
Strategy: Remain bearish, move risk to 1.1895 (from 1.993), target 1.1795

London Commentary:[/B] Is the USDCAD finally showing some directional bias? It appears that way as the pair has come under the neckline from a head and shoulders continuation pattern. Also, the decline from 1.0591 looks impulsive. Favor the downside for a test of 1.0340 as long as price is below 1.0591.

New York Update: The USDCAD has grinded considerably lower throughout the session, placing oscillators into vastly oversold suggestions. As a result, and in combination with valid support that is currently holding price action, the currency is set for a pop higher in the afternoon session. As a result, we set initial tests at the 1.0454 23.6% fib from the 1.0582-1.0415 bear wave with capping emerging at the 1.0470 September 7th low.
Strategy: Flat

London Commentary:[/B] After breaking below the short term support line drawn off of the 8/29 and 8/31 lows, the AUDUSD rallied right back to .8290, negating our bearish bias. The pattern since the 8/27 high at .8333 is certainly corrective but so is the rally leg from .7673 to .8333. The evidence suggests that a large complex correction is unfolding and that there will be one more rally leg (above .8333). However, it is unclear whether or not this rally will occur before or after a drop below .8171. If a triangle is unfolding, then the break higher will occur with .8171 remaining intact. For this reason, a cautious bullish bias is warranted.

New York Update: Upside is limited even as the Australian dollar has broken higher above the afternoon resistance trendline at 0.8300. Although momentum may be on the bid side, initial barriers at the 0.8364 Aug 14th low should provide impetus for a short term pullback. Downside targets are looking light at the 0.8300 psychological trendline with further barriers below at 0.8275.

Strategy: Flat

London Commentary[/B]: On Friday, we wrote “look for a drop below .6834 to complete the decline from .7272, which would be wave b in the correction from .6639. Potential support is the 78.6% of .6639-.7272 at .6775. A strong rally in wave c is expected to register a new (above .7272).” Afer dropping below .6834, Kiwi has reversed and is working higher so there is no change to the outlook for a continued rally. A bullish bias is warranted as long as price is above .6824.

New York Update: With a similar situation in the NZDUSD, we expect topside tests at the 0.7100 psychological trendline in being the impetus for a interim pullback. As a result, initial support targets are set at the 0.7016 38.2% fib from the 0.6937-0.7065 bull wave, with capping at the 0.7000 psychological trendline. Any further breakdowns would leave a longer term retracement in order.
Strategy: Bullish now, against .6824, target above .7272

Written by Richard Lee, Currency Strategist of