FX Technical Weekly

Dollar strength looks likely to continue near term but possibly in a corrective manner. The EURUSD shows a possible diagonal unfolding from 1.2454 as wave C of the correction from October 2008. The implications are USD bullish next week.

                                    [B][U] EURO / US DOLLAR[/U][/B]

                                                                        [B]Classical Outlook: [/B]The latest rebound has stalled out by the 61.8% fib retracement off of the 1.4340-1.3805 move and former support turned resistance in the 1.4100 area, and a fresh lower top could now be in place ahead of the next drop through 1.3800. A closer look at an 8-hourly chart, shows the formation of a major head & shoulders top, that if triggered, would ultimately project a more significant decline back towards a measured move objective by 1.3250 over the coming weeks. Only back above Wednesday’s high at 1.4145 delays.                                                                   [B]Elliot Wave Outlook:[/B] The rally from the October 2008 low is corrective and the long term trend.  The question is whether or not 1.4723 will give way before resumption of the larger decline.  Near term, price is expected to decline below 1.3800 with 1.4181 remaining intact.  This decline could prove corrective as wave 4 of a diagonal.  Expect choppy price action.                                                                                 

                                     [B] [U]BRITISH POUND / US DOLLAR[/U][/B]

                                                                        [B]Classical Outlook: [/B]The latest rallies above 1.6600 are not seen sustainable and a double top scenario could play out on the daily chart with a break below neckline support at 1.5800 to open a measured move objective back to the 1.5000 area over the coming weeks. The bearish reversal day on Friday helps to confirm our negative outlook and hopes for a major double top. Only back above 1.6665 concerns.                                                                   [B]Elliot Wave Outlook:[/B] Despite the extent of the rally, I maintain that the rally from 1.3500 is wave 4 within the 5 wave rally from the 2007 high.  In other words, the entire rally will eventually be retraced.  There is no confirmation that a top is in place yet but a top is what I am looking for.                                                                                 

                                     [B] AUSTRALIAN DOLLAR / US DOLLAR[/B]

                                                                        [B]Classical Outlook: [/B]Gains appear to be stalling out shy of the 2009 highs by 0.8265, and by the 78.6% fib retrace off of the 0.8265-0.7825 move, with a lower top sought out at 0.8240 ahead of a fresh drop back below 0.7825 over the coming days. A potential 1-2-3 topping pattern or double top scenario could be playing out as well, with a break below 0.8060 to accelerate declines back towards the neckline at 0.7825, below which opens a more significant depreciation back towards 0.7400 over the coming weeks.                                                                   [B]Elliot Wave Outlook:[/B] Nothing has changed regarding long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much).  There is no confirmation of a top but favor weakness is favored below .7800 with .8269 remaining intact.                                                                                 

                                     [B] NEW ZEALAND DOLLAR / US DOLLAR[/B]

                                                                        [B]Classical Outlook: [/B]The market appears to have carved out an interim top by 0.6600 with the latest rebound out from 0.6155 classed as corrective. These gains have now stalled out by the 61.8% fib retrace off of the 0.6600-0.6155 move and a lower top is now sought out by 0.6470 ahead of the next downside extension to be confirmed on a break back below 0.6155. Ultimately, only a break back above 0.6600 negates bearish outlook.                                                                   [B]Elliot Wave Outlook:[/B] My focus remains on the longer term structure, especially the rally from .4890, which is a textbook zigzag.  Waves A and C are equal, which is common.  Favor weakness below .6150 with .6600 remaining intact.                                                                                 

                                     [B] US DOLLAR / JAPANESE YEN[/B]

                                                                        [B]Classical Outlook: [/B]The break of shorter-term trend-line resistance off of the 2009 highs on June 5 likely opens the door to additional upside over the medium-term, with any setbacks now seen well supported on dips to 97.00, which acts as previous resistance now turned support. Look for a higher low to carve out in the lower 97.00’s ahead of fresh upside over the coming days back above 98.90 and towards the more critical falling trend-line resistance just over 100.00.                                                                   [B]Elliot Wave Outlook:[/B] A triangle continues to play out.  Wave d of the triangle is either complete or in its latter stages.  A decline in wave e could be sharp and see 95 before the terminal thrust in wave C (that will eventually end above 101.50).                                                                                 

                                     [B] US DOLLAR / CANADIAN DOLLAR[/B]

                                                                        [B]Classical Outlook: [/B]Appears to be attempting to carve out a base with the market taking the form of a potential inverse head & shoulders pattern. Look for a close above 1.1200 to confirm the bullish pattern formation and open significant upside over the coming weeks back towards the 1.1800 area. Only back under 1.0940 gives reason for concern.                                                                   [B]Elliot Wave Outlook:[/B] The long term trend is up and a low may be in place at 1.0782.  It is possible to count the decline from 1.3068 as an A-B-C decline with wave B as a triangle (one can make the argument that the decline is a double zigzag as well).                                                                                 

                                     [B] US DOLLAR / SWISS FRANC[/B]

                                                                        [B]Classical Outlook: [/B]Setbacks have stalled out by 1.0700, which also coincides with previous resistance now turned support, and a fresh higher low is now sought out, to be confirmed on a break back above 1.0990 over the coming sessions. The formation on the 8-hourly chart has taken the shape of a potential inverse head & shoulders pattern that ultimately projects upside back towards the 1.1400 area over the coming weeks. Only back under 1.0650 delays.                                                                   [B]Elliot Wave Outlook:[/B] The USDCHF is in the exact same position as the EURUSD (but as the inverse).  The rally from 1.0549 may be wave 4 of a diagonal that should last a few more weeks.  An eventual drop below 1.0367 should eventually complete the entire decline and lead to resumption of the bull.                                                                                 

                                     [B] EURO / JAPANESE YEN[/B]

                                                                        [B]Classical Outlook: [/B]The market has failed to extend gains this week following consecutive weekly higher highs. However, we would need to see more confirmation of a potential top to shift our focus away from the topside. Look for a break back below 135.60 to signal shift in structure, while above 135.60 keeps focus on additional gains and fresh 2009 highs beyond 140.00. No strong bias at current levels.                                                                   [B]Elliot Wave Outlook:[/B] Following the 5 wave decline from 170, a persistent countertrend rally has brought the EURJPY back close to 140.  Additional strength should challenge 141.80 (50% retracement).  A correction near term could see s drop below 135.70 before continued strength.                                                                                 

                                     [B] EURO / BRITISH POUND[/B]

                                                                        [B]Classical Outlook: [/B]The break to fresh 2009 lows below 0.8635 has accelerated declines, with the market trading into the 0.8400’s thus far. Weekly studies still show plenty of room to run and we look for additional setbacks over the coming weeks back towards the 0.8200 area.  Any rallies back into the 0.8600-0.8800 should be used as opportunities to build on existing shorts.                                                                   [B]Elliot Wave Outlook:[/B] The break below .8634 exposes a low in November 2008 at .8230 (this is the next level of chart support).  The series of lower highs and lower lows is bearish as is the daily close below the 200 day SMA.  Staying below .8872 keeps the pair on a lower path.                                                                                 

                                     [B] EURO / CANADIAN DOLLAR[/B]

                                                                        [B]Classical Outlook: [/B]We had been recommending to establish long positions on dips towards 1.5500 in previous weeks, and this strategy has proved rewarding after setbacks on the cross stalled just below 1.5500. A medium-term base now looks to be carving out and scope exists for more significant upside back towards the 1.6500 area over the coming weeks. Look for a break back above 1.5775 to accelerate gains. Only back under 1.5345 gives reason for pause.                                                                   [B]Elliot Wave Outlook:[/B] The drop below 1.5462 negates the previously held short term bullish bias.  Failure to hold above a support line from late 2007 favors additional weakness.  Staying below 1.6014 keeps the trend pointed down.  An impulse (5 waves) is in its final stages from that level, after which I will expect a countertrend advance.  This should unfold within the next week or so (short opportunity probably next week).                                                                                 

[B][B]Trade List[/B][/B]

*Entry prices for trades that are recommended ‘at market’ are listed as the close price on the date published.