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EURUSD
London Commentary: There is no change in our call for a push to the 1.3750 area and reversal. “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. The advance from 1.3360 has stalled near the 61.8% retracement from the top (1.3852) to 1.3360. A larger more complex correction may be playing out. In this instance, the rally from 1.3360 would end up as an a-b-c rally with the rally from 1.3450 unfolding as wave c (and in 5 waves). Even in this bearish alternate count, we expect a new high above 1.3684 before a reversal. The 78.6% at 1.3747 is a potential reversal point.”
New York Update: The EURUSD is looking to drop a few more basis points as we head into afternoon trading. Although bullish setups still remain in the longer term, currently the currency pair is breaking through key support at 1.3617 with momentum indications supportive of the notion. As a result, we look for initial barriers at the 1.3587 August 23rd high with capping below at the 1.3570 38.2% fib from 1.3390-1.3679.
Strategy: Remain bullish, move risk to 1.3618 (from 1.3540), target hit at 1.3620, second target is at 1.3730
USDJPY
London Commentary: The high put in on Thursday at 117.12 remains intact but the decline since then is corrective to this point, leaving open the possibility that one more high will be registered (above 117.12). 117.89 is a likely reversal point. This is the confluence of the 50% of 124.13-111.59 / 100% extension of 111.59-115.50/1113.98. We will be looking for a top and reversal near that point. However, it is possible that a top is in place at 117.12 as the decline from 116.74 could very well extend. With this in mind, a bearish bias is warranted against 116.25. If the decline does extend, then potential support is at the 8/22 low of 113.98.
New York Update: Further downside is expected in the currency pair as the USDJPY looks to make a firm close below support at 114.41. With momentum indications backing the notion, we are looking for initial targets at the 113.85 61.8% fib from 112.03-116.78 bull wave before our targets at 111.59 are tested. Risk is noted just above recent resistance at 115.00.
Strategy: Bearish against 116.25, target below 111.59
GBPUSD
London Commentary: There is no change from yesterday as Cable remains in virtually the same exact position as the EURUSD. “There are a few different valid wave counts at the current juncture but the one that we favor labels the entire decline from 2.0654 as large wave A. The rally since is large wave B (although the rally from 1.9651 could just be the first leg of wave B). Resistance should be strong near current levels, which is 2.0153 and 2.0271 (50%-61.8% of 2.0654-2.0153). The mentioned 161.8% is also at 2.0203 (middle of the fibo zone) and this is a previous congestion area.” Look for a reversal lower near current levels.
New York Update: Bearish momentum looks to be key in the afternoon session with GBPUSD also looking to drop a few basis points. Although consolidating at the 2.0024 support trendline, the pair is looking to test initial barriers, on a confirmed break, at the 1.9977 August 24th low with capping at the 1.9927 61.8% fib from 1.9766-2.0183. Risk seems minimized at the 2.0093 trendline resistance.
Strategy: Bullish targets hit (flat)
USDCHF
London Commentary: We continue to favor the idea that the USDCHF is thrusting lower from a longer term triangle. The decline should extend below 1.1815. “As continues to be the case, rallies have unfolded in 3 waves at varying degrees of trend, indicating to us that the larger trend is down. A break below 1.1990 instills confidence in the bearish case and gives scope to a test of the 8/6 low at 1.1815. The first bearish target is the 161.8% extension of 1.2215-1.1993/1.2111 at 1.1753.” Price has come under 1.1990, therefore we are confident that the near term path is down.
New York Update: Slow and steady the USDCHF is bouncing back to test a key resistance barrier, leaving our bearish notion intact. Failure to break above the 1.2213-1.2102 descending trendline would purport a decline to initial barriers at the 1.1992 before making a run to the session low of 1.1960 where formidable capping is likely. Upside should be restricted to the 1.2040 August 28th high.
Strategy: Bearish, move risk to 1.2046 (from 1.2215), targets 1.1760 and TBD
USDCAD
London Commentary: We wrote last week to “look for a test of 1.0340 if 1.0531 gives way.” We continue to look lower as the USDCAD continues to test 1.0500. The 100% extension of 1.0866-1.0530/1.0666 is at 1.0331, close to the 7/24 low of 1.0340. This is an intial bearish target. The bearish case is strong as long as price is below 1.0666. 1.0571 is near term resistance. Be careful though since the longer term wave structure strongly suggests that a significant bottom is due to form soon. Shorts should keep risk tight.
New York Update: Jumping higher throughout New York, the USDCAD is approaching a key resistance level in the 1.0666 session high back on August 21st. With momentum indications turning to the downside, we remain bearish on the currency pair, so long as the 1.0666 benchmark remains intact. Initial targets are set for the 1.0615 38.2% fib from the 1.0837-1.0478 bear wave.
Strategy: Remain Bearish against 1.0666, target 1.0340
AUDUSD
London Commentary: The AUDUSD looks similar to cable in that the decline from the top (.8870) is in 3 waves. This leaves open several possibilities but we favor labeling the decline from .8870-.7675 as wave A. The rally from .7675 is wave B (or just the first leg of wave B) and may be close to complete. We wrote last week that “strength may continue until the 100% extension of .7675-.8092/.7955 at .8374. The 61.8% of .8870-.7675 at .8413 defends this level as well.” We have stated that we will be looking for a top and reversal near there but a top may be in at .8333. This morning?s rally from .8206 to .8278 is clearly in 3 waves (to this point). A break below .8206 warrants bearish action.
New York Update: With the break of the 0.8206 support trendline, the AUDUSD is looking heavy once again heading into the Asian session. As a result, with risk minized to just above the level, initial tests are emerging at the 0.8089 38.2% of 0.7707-0.8322 bull wave.
Strategy: Sell break of .8206, against .8333, targets .8072 and TBD
NZDUSD
London Commentary: We wrote yesterday that “there are a few valid waves counts at the current juncture but look for a test of the 100% extension of .6639-.7026/.6886 at .7273 before reversal potential.” The high in the NZDUSD yesterday was at .7271, which is the 100% extension. A small 5 waves down would indicate bearish potential. For now, there is no evidence of a top." A small 5 waves down appears to have unfolded from .7272 to .7042 and a correction ended at .7149. Look lower.
New York Update: A similar situation once again arises in the NZDUSD currency pair as the Kiwi continues to look heavy. Given the consolidation just above the 61.8% fib of 0.6663-0.7268 at 0.6965, a confirmed break of the current support must be seen before targets at the next fib level can be considered in the hourly charts.
Strategy: Bearish now, against .7272, targets TBD
Written by Richard Lee, Currency Strategist for DailyFX.com