Forex Technical Update 8-21-2007

[B]London Commentary:[/B] There is little change to what we wrote yesterday, although the pattern has cleared up a bit. “The decline from 1.3838 is either large wave C to complete an A-B-C correction, wave 3 in a bearish sequence that began at 1.3852, or larger wave A to begin a larger correction from 1.3852. A rally above 1.3546 would make the advance from 1.3360 impulsive (5 waves) and favor additional gains. A rally through 1.3608 would eliminate the idea that wave 3 down unfolded from 1.3838.” With the rally this morning leaving a clear 3 wave correction from 1.3546 to 1.3456, it looks as though 1.3546 will be breached. As mentioned though, once that level is broken, risk of a correction right back to 1.3456 (or lower) will is high.
[B]New York Update:[/B] Upside bias continues to reign in the afternoon assessment as confirmed by momentum oscillators. As a result, we continue to eye the 1.3546 August 17th spike high as the benchmark to be broken with an easy take out of the 1.3519 August 21st spike high. Risk looks to be capped at the 1.3431 support trendline.
[B]Strategy:[/B] Wait for a rally through 1.3546 with 1.3456 intact, then a correction back towards 1.3456 (or lower). That will offer an opportunity to get bullish.

[B]London Commentary:[/B] It remains our working assumption that “the rally from 111.59 may be the first leg of a 3 wave correction that will be larger wave 2. Potential reversa points prior to 119.83 are 117.86 and 119.34 (50% and 61.8% of 124.13-111.59).” 5 waves down from 124.13 appear complete so we expect this rally from 111.59 to unfold in a corrective manner and challenge the mentioned Fibonacci reversal zone (117.86 or 119.34). Former support at 117.20 may now be resistance. Near term, 113.73 (61.8% of 111.59-115.50) should be solid support.

[B]New York Update:[/B] Bullish prospects are also mounting in the USDJPY as the pair continues to consolidate at the 114.00 psychological trendline. With momentum indicators turning higher, short term targets are emerging above the 115.49-115.19 desending trendline. A break above would confirm our bullish bias, turning attention higher to the 117.20 former support level. Risks to the downside look limited to 113.80 at the moment.
[B]Strategy:[/B] Look to get bullish near 113.80, against 111.59, target 1 117.80

[B]London Commentary:[/B] A larger 4th wave correction would be expected following the new low. This view is favored as long as price is below 2.0155." It is still possible that the GBPUSD registers a new low (beneath 1.9651) in order to complete the decline from 2.0462, but it is also possible that a more bullish pattern is underway since the decline from 1.9935 is in 3 waves and the preceding rally from 1.9651 is an impulse (5 waves). The decline from 1.9935 also retraced about 61.8% of the advance from 1.9651. For this reason, a cautious bullish stance is warranted above 1.9743.
[B]New York Update:[/B] Trading in a considerable range, the odds are for a potential uptick in the pound sterling as bidders eye the 1.9867 resistance trendline to be penetrated, above our benchmark of 1.9743. The break above would subsequently put the 1.9900 psychological trendline in play with medium term forecasts lying around the 2.0083 August 13th spike low.
[B]Strategy:[/B] Bullish above 1.9743, target TBD

[B]London Commentary:[/B] We wrote yesterday that “downside potential remains. A drop under 1.1993 would complete 5 waves down from 1.2215. If this happens, then we will look for a corrective rally in order to get bearish.” This pattern is the same as the EURUSD (but the inverse of course). It looks like price will launch an attack on 1.1993, so look for a pullback following a new low (under 1.1993). Initial resistance would be just under 1.2100.
[B]New York Update:[/B] Trading at the top of the range, USDCHF bidding momentum looks to be waning as we approach the 1.2075 resistance trendline in afternoon trading. Although a break above the ceiling would purport an advance to the 1.2100 psychological trendline, our bias continues to be to the downside as currency price remains an opportunity to short till 1.1993.
[B]Strategy:[/B] Following a new low (under 1.1993), look for a pullback towards 1.2100 in order to get bearish against 1.2215.

[B]London Commentary:[/B] For more on the USDCAD, see our special report at USDCAD - What’s Next. With the decline from 1.0866 to 1.0531 in 5 waves, at least one more down leg is expected. 1.0657 is a potential reversal point (resistance) as is the 61.8% of 1.0866-1.0531 at 1.0738. Once we see evidence that the advance from 1.0531 is complete, we will publish bearish targets.
[B]New York Update:[/B] Inching higher in the afternoon, the USDCAD is presenting bearish opportunities as momentum is already beginning to wane in the major currency pair. Momentum indications are turning as the price action confronts heavy resistance just below the 1.0650 trendline resistance, setting up declines through till the 1.0570 August 21st low. A subsequent break below the support level would open scope for a test of the 1.0540 support trendline.
[B]Strategy:[/B] Look to get bearish between 1.0657 and 1.0738, against 1.0866, target TBD

[B]London Commentary:[/B] The Aussie is in an interesting position right now. The advance from .7673 has stalled at the 38.2% of .8661-.7673. The rally is also in 3 waves so it is possible that a 4th wave is complete or close to complete at .8065. A drop under .7673 would complete 5 waves down from the top (.8870) and give scope to a large correction higher.
[B]New York Update:[/B] Set for a mild continuation higher, the AUDUSD looks set for a test above the 0.8092 August 20th high at 0.8193 in the medium term. However, as with any of the other assessments, a confirmed close above the trendline resistance would be needed before such a move can occur. Any downside would be countered by bids that are looking to surface just below current support at the 0.7943 23.6% fib from 0.8661-0.7715 bear wave.

[B]Strategy:[/B] Flat

[B]London Commentary:[/B] Kiwi is in a similar situation (compared to Aussie). That is, a 4th wave correction may be complete or close to complete at .7026. The 38.2% of .7701-.6639 is at .7045 and is potential resistance. A drop under .6639 would make the decline from the top (.8108) 5 waves. A large upward correction would follow.

[B]New York Update:[/B] Selling pressure is looking to be in motion as the NZDUSD has turned lower and broken through rising trendline support in the afternoon. Defeating the 0.6639-0.6910 rising trendline, the break lower is opening up initial targets at the 0.6825 August 20th hourly low with further targets surfacing at the 0.6815 support. Although momentum is on the side of the bearish drop, should the pair reverse and find momentum, the upside potential would need a confirmed break of the 0.7000 psychological figure before setting targets.
[B]Strategy:[/B] Flat