Majors continued to remain under pressure, kicking the Euro, Pound and Yen into bearish territory. The only improvement on the session was made on the USDCAD front, with the only bullish trend occurring in the USDCHF pair.
[B]London[/B][B] Commentary: [/B][I]Little to add to the EURUSD as last night/this morning?s rally came within pips of 1.3684. Potential does remain for a push to the 1.3750 area before a reversal. However, the advance from 1.3360 has stalled near the 61.8% retracement from the top (1.3852) to 1.3360. The idea that a larger more complex correction is playing out from 1.3852 strengthens each day that the EURUSD fails to make a new high. As we have decribed in recent days, our favored view is that the decline from the top (1.3852) is large wave A and the advance from 1.3360 is large wave B (which may be complete at 1.3684). Large wave C is expected to eventually come under 1.3360. This decline will most likely be extremely fast. At this point, a cautious bearish bias is warranted below 1.3684. A break of 1.3563 instills confidence in the bearish bias. [/I]
[B]New York[/B][B] Update: [/B] Consolidating in the New York afternoon, the EURUSD currency pair is testing key support at the 1.3622 support trendline. A formidable close below the level would see an imminent test of our previously mentioned benchmark support of 1.3563, lending to further downside. Any upside would be restricted to a test of the 1.3650 psychologicial trendline as momentum indicators continue to loom in overextension.
[B]Strategy: [/B]Flat, bearish on a break below 1.3563
[B]London Commentary: [/B][I]Bigger picture, the USDJPY has traced out 5 waves lower (which is large wave 1)from 124.13 to 111.59, indicating a large degree trend change. Since the low at 111.59, it is our contention that an A-B-C correction is unfolding as large wave 2. Within this A-B-C, wave C might be underway from 113.86. A break above 116.24 warrants a bullish stance against 115.22, targeting 119.34 (61.8% of 124.13-111.59) for the completion of wave C (wave 2). The best opportunity will be to the downside for wave 3 lower. This most likely will not present itself until next week.[/I]
[B]New York[/B][B] Update: [/B]Creeping along the 113.91-115.24 ascending trendline, the USDJPY looks set for another leg higher, contrary to mixed momentum indications. However, prior to any long initiations, we are cautiously looking for a confirmed break above the 116.24 August 29th spike high. Any downside opportunities would come on a break of support, with initial targets set for the 115.32 August 28th hourly low.
[B]Strategy: [/B]Flat (waiting for wave 3 bearish opportunity)
[B]London[/B][B] [/B][B]Commentary:[/B] [I]The structure of Cable is virtually the same as the EURUSD. That is, in the intermediate term, we expect both pairs to turn lower and head much lower. However, just as the EURUSD could make a new high before reversing (1.3750??), the GBPUSD appears that it too will make a new high. We can not ignore the fact that setbacks since 8/17 have occurred in 3 waves. 3 means indicates countertrend movements, therefore the trend is pointed higher. Look for a top and reversal near the 61.8% of 2.0654-1.9651 at 2.0271. [/I]
[B]New York[/B][B] Update: [/B]Pulling back from the 2.0173 New York session high, the GBPUSD is set for a test lower at the 2.0093 August 23rd spike high. A breach would support a test of the 2.0050 support level in the near term. Comparaitve failure to break below the support trendline would purport an advance towards the 2.0200 resistance figure up top.
[B]Strategy: [/B]Short term trade idea - bullish against 1.9961, target 2.0271 and 2.0439 (move to BE after T1 hit)
[B]London[/B][B] Commentary[/B]: [I]With price action remaining choppy on a short term basis, we are showing the daily chart today for perspective. [B]The daily chart shows a clear 5 wave rally from the December 2004 low to the November 2005 high. Everything since has been a correction. However, the correction is not complete. A complex correction has unfolded from the November 2005 high (W-X-Y). Wave X is a triangle, which means that we should expect a terminal thrust lower to complete the correction. The thrust to 1.1815 is most likely just the first leg of wave Y lower. As such, we are looking for price to come under 1.1815 before any meaningful bottom is in place. [/B][/I][B][/B]
[B]New York[/B][B] Update: [/B]Finding formidable support at the 1.2020 floor, the USDCHF has headed higher going into afternoon trading. With momentum indicators ticking up, signals are for further advances at this point but not before a definitive close above the 1.2059 resistance trendline. Failure to breach the level would purport another imminent test of 1.2020.
[B]Strategy: [/B]Flat (best idea here is to sell breaks lower?.first bearish pivot at 1.1960)
[B]London[/B][B] [/B][B]Commentary:[/B] [I]After briefly trading above 1.0666, the USDCAD has come off again. One possibility is that the rally from 1.0470 completed an expanded flat correction from 1.0531. However, the longer term charts (we are showing the weekly today) indicate that a significant bottom may be in place at 1.0340. A rally above 1.0676 most likely leads to a break above 1.0866. Short term, there is a possible head and shoulders continuation pattern, which is bearish. This pattern would suggest a retest of 1.0340 is in order before a reversal occurs.[/I]
[B]New York[/B][B] Update:[/B] Rising after the precipitous NY morning decline, the currency pair is looking more bullish than ever finding support at the 1.0550 floor. Subsequently, momentum indications are supportive of another leg higher even as we come to formidable resistance just 14 basis points below the 1.0600 psychological trendline. As a result, we remain cautiously bullish on a break of current resistance with initial targets at the 1.0661 intraday high.
[B]London[/B][B] [/B][B]Commentary: [/B][I]A correction is undoubtedly playing out right now in the Aussie (all pairs actually). The 3 wave movements at carrying degrees of trend make this clear. There are a number of possibilities right now, too many to take a strong stand one way or the other. Price could come under .8051 to test the 61.8% of .7673-.8333 in a b wave before proceeding higher in wave c to complete the correction from .7673?.or a b wave bottom may already be in place and price could continue higher from above .8051 to complete the c wave. A rally through .8234 favors the latter scenario and a drop under .8051 favors the former. [/I]
[B]New York[/B][B] Update:[/B] Finding a floor at the 0.8150 support trendline, the AUDUSD looks to be confined to a short term channel. Breaks higher or lower would purport a directional bias in the Asian sess. As such we are eyeing the round psychological trendlines at 0.8100 and 0.8200.
[B]Strategy: [/B]BearishTarget 1 hit on AUDUSD at .8072, move to flat
[B]London[/B][B] [/B][B]Commentary[/B]: [I] Naturally, the Kiwi is in the exact same position as the AUDUSD. Since the NZDUSD already tested the 61.8% of .6639-.7272 at .6881, it seems more likely that a B wave low is already in place at .6869 and that price is headed higher in wave C to test .7500 before a reversal. .7501 is the 100% extension of .6639-.7272/.6869 and .7547 is the 61.8% retracement of .8082-.6639. [/I]
[B]New York[/B][B] Update: [/B]A similar situation has evolved in the NZD USD as we cautiously eye a breach of either the 0.7000 or 0.7100 in forming a directional bias. With momentum indicators fluctuating in neutrality price action looks to be kept steady heading into the close.
[B]Strategy[/B]: Flip to bullish, against .6869, target .7500
[B]Written by: Richard Lee, Currency Strategist[/B]