Forex Technical Update 8-22-2007

[B]London Commentary:[/B] The bullish EURUSD scenario is playing out as expected. There is a slight change in the wave count from yesterday, with the result being a more bullish count. We see potential for a third of a third wave to unfold towards the 161.8% extension of 1.3370-1.3546/1.3450 at 1.3734. Keep risk tight though once price reaches 1.3626, which is the 100% extension. A top and reversal there would indicate that a larger bearish cycle is likely underway from the top at 1.3852 (the alternate count is shown in black). This near term bullish bias is best served with 1.3450 remaining intact.
[B]New York Update:[/B] With 1.3450 intact from this morning?s charge higher, EURUSD upside potential looks open for a test at the 1.3561 resistance trendline. Momentum indicators are siding with notion, with a break higher putting the 1.3734 final target into play. Any downside risk should be regulated to the 1.3519 August 21st session high on a short term pullback.
[B]Strategy:[/B] Bullish now, against 1.3450, targets 1.3620 and 1.3730

[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. Wave b of the correction that began at 111.59 may be complete at 113.98. A break above 115.50 gives scope to a test of the mentioned resistance levels.

[B]New York Update:[/B] Near term upside potential in the USDJPY looks limited heading into the afternoon close as we eye the 115.50 resistance trendline. Although the longer term bullish bias remains intact, momentum indications are siding with a brief retracement before a realignment to the long side. As a result, we look for the confirmed break above the 115.50 in supporting further upside with a break lower being minimized to the 114.25 support off of the 115.49-115.19 descending trendline.
[B]Strategy:[/B] Flat

[B]London Commentary:[/B] Cable has advanced to test the 1.9900 figure this morning and a push through 1.9935 strengthens the bullish case. Similar to the EURUSD, be careful if the 100% extension of 1.9651-1.9935/1.9743 at 2.0027 is reached as a top and reversal is possible there. A more bullish outcome has price testing the 161.8% at 2.0203. Either way, the near term bias is bullish as long as price is above 1.9743.
[B]New York Update:[/B] Still above the mentioned 1.9743 support level, the GBPUSD continues to retain a bullish undertone in the afternoon. As a result, we remain steadfast in our assessment of move higher in the major pair, seeking out initial barriers at the 1.9953 August 15th session high. A subsequent penetration above would open scope for a touch on the 2.0000 figure where formidable barriers await.
[B]Strategy:[/B] Bullish above 1.9743, targets 2.0020 and 2.0200

[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.” A truncated 5th may have ended at 1.2012 and a correction is palying out now. If this is the case, then look for resistance near 1.2130 (61.8% of 1.2215-1.1993). It is possible that the next big move will be a third wave down, in which case, 1.1815 would give way quickly to much lower prices.
[B]New York Update:[/B] Pulling back slightly in New York, the USDCHF is consolidating as we head into the close. Now finding support just above the 1.2050 figure, at 1.2057 trendline support, the pair may be set for a pullback higher in the short term before a reassessment to the downside is warranted. As a result, upside potential seems limited to the 1.2000 psychological trendline and the 1.2110 session high. Further downside would be initiated on a break of current support.
[B]Strategy:[/B] Look to get bearish near 1.2130, against 1.2215, target TBD

[B]London Commentary:[/B] We wrote yesterday that “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.” A top may be in place at 1.0666, although a more complex correction could unfold towards the mentioned 1.0738. Still, a cautious bearish bias is warranted against 1.0666. Look for a test of 1.0340 if 1.0531 gives way.
[B]New York Update:[/B] USDCAD is looking heavy as the pair is running into heavy resistance at the 1.0635 trendline ceiling with further barriers up top at the 1.0653 trendline. As a result, we are inclined to see a test of the channel bottom of 1.0575, below our bearish benchmark of 1.0666 as momentum indications side with the notion.
[B]Strategy:[/B] Bearish against 1.0666, target TBD

[B]London Commentary:[/B] The AUDUSD has hardly budged therefore there is no change to the outlook. “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] The AUDUSD has only inched higher since we last evaluated the currency, breaking through the 0.8047 resistance, only to meet with formidable barriers just above the 0.8100 psychological figure. As a result, with a formidable break higher of the 0.8068 session high we would be inclined to see a test of the 0.8200 resistance in the short term. Any downside looks to be limited to the previous support of 0.8000.

[B]Strategy:[/B] Flat

[B]London Commentary:[/B] The same can be said for the NZDUSD as the pair remains confined to what we are treating as a 4th wave correction. “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 looks light as the NZDUSD remains in consolidation, barely even making an attempt on the 0.7000 level mentioned yesterday. As a result, with formidable resistance at the psychological resistance, momentum indicators may win out and place support bids at 0.6900 in play.
[B]Strategy:[/B] Flat