FX Technical Weekly

After strengthening early in the week, the US dollar sold off and left weekly candles sporting long wicks. Taken alone, the long wicks do not bode well for the USD. Still, bias determining levels are 1.4180 for EURUSD, 1.6670 for GBPUSD, .8269 for AUDUSD, 93.50 for USDJPY, 1.0940 for USDCAD and 1.0650 for USDCHF.

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

                                                                        [B]Classical Outlook: [/B]We remain very bearish on the pair and view the latest rally as merely corrective in nature, with the market attempting to seek out a fresh lower top below 1.4175 ahead of the next drop back through 1.3750 and towards our measured move head & shoulders objective by 1.3250 over the coming weeks. There is a solid confluence in the 1.4010-1.4040 area, with falling trend-line support off of the 2009 highs, the 61.8% fib retrace off of the 1.4175-1.3750 move and the 50% fib retrace off of the 1.4340-1.3750 move all converging in this area.                                                                   [B]Elliot Wave Outlook:[/B] The question at hand is whether or not [1.4723 will give way before resumption of the larger decline](http://www.fxspeculations.com).  I wrote last week that “price is expected to decline below 1.3800 with 1.4181 remaining intact.  This decline could prove corrective as wave 4 of a diagonal.”  We got the drop but the EURUSD closed well off of the week’s low.  Wave 4 of the diagonal may be complete.  1.4177 defined the trend (bearish below and bullish above).                                                                                 

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

                                                                        [B]Classical Outlook: [/B]The double top scenario that we had anticipated in the previous week has failed to play out as of yet with the latest bout of consolidation threatening the bearish formation. Nevertheless, the market has recently failed by falling trend-line resistance off of the 2009 highs and we look for a lower top to carve out below 1.6620 ahead of a fresh drop over the coming sessions back below 1.6185. A break below 1.6185 will be required to accelerate declines and increase the probability for a retest of 1.5800 and deeper drop towards the 1.5000 area over the medium-term.                                                                   [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]Dips have been very well supported in the 0.7800’s and the market has chosen to enter a period of consolidation after posting fresh 2009 highs by 0.8265 in early June. We had been looking for a double top scenario in the previous week, but this has failed to play out with the consolidation nearly negating the pattern formation. We still however retain a bearish bias and look for a lower top to carve out below 0.8240 ahead of the next major drop below 0.7825-50. Only back above 0.8265 negates outlook.                                                                   [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 has been in the process of consolidating the latest setbacks off of the 2009 highs by 0.6600 set in early June.  We had established a short position in the previous week and after booking profits on half at 0.6300, we were taken out at cost on the remaining half of the position. While we still retain a bearish bias, we will stand aside at current levels and await a clearer signal. Any rallies should be well capped ahead of 0.6500 to keep the toppish structure intact.                                                                   [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]Price action in the pair has been extremely choppy with the latest sharp pullback forcing a shift in our bias and suggesting that deeper setbacks are now on the horizon.  Look for a break below 95.55 over the coming sessions to open a more significant drop towards the 93.55-85 area which has offered itself as a solid support zone in 2009. Below 93.55 should force yet another wave of selling to ultimately challenge the multi-year and 2009 lows by 87.15. Back above Friday’s 97.20 highs will be required to delay bearish outlook.                                                                   [B]Elliot Wave Outlook:[/B] The triangle count remains valid but in looking at multiple markets (equities, metals, oil, FX), it appears that fear is about to return to global markets.  As such, the USDJPY count in which the drop from 101.50 is a series of 1st and 2nd waves warrants attention as well.                                                                                 

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

                                                                        [B]Classical Outlook: [/B]The very non-classic formation of an inverse head & shoulders basing pattern talked about in the previous “Weekly Classical” has now triggered and we are projecting fresh upside over the coming weeks back towards the 1.1800 area, by the previous trend highs from mid-May. Any setbacks are now seen well supported on dips ahead of 1.1000, with only a break back below this psychological barrier giving reason for concern.                                                                   [B]Elliot Wave Outlook:[/B] It is possible that the USDCAD decline from 1.3068 is complete but there remains a competing alternate in which the pair will drop to a new low (below 1.0780) before resuming the larger rally.  In such a case, the 61.8% of the advance from .9055 is at 1.0417 and is potential support.  There is potential short term support is at 1.1200 and bullish potential remains with price above 1.0940.                                                                                 

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

                                                                        [B]Classical Outlook: [/B]It is too difficult to recommend any formal positions at current levels but we are still hanging on to the idea of the formation of a major inverse head & shoulders pattern, to be confirmed on a break back above 1.1000. A fresh higher low is now sought out above 1.0650 in anticipation of the move back through neckline resistance at 1.1000 over the coming days. Ultimately, only back below 1.0650 would give reason for concern.                                                                   [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 could be complete.  An eventual drop below 1.0367 would complete the entire decline and lead to resumption of the bull.  If the low is already in place, then price must stay above 1.0650.                                                                                 

                                     [B] EURO / JAPANESE YEN[/B]

                                                                        [B]Classical Outlook: [/B]The previous weekly doji close has been followed by a strong bearish reversal week with the market declining sharply to end a sequence of consecutive higher lows. This like now opens the door to a more significant decline over the coming weeks back towards recent trend support in the 125.00-127.00 area. Only back above 140.00 negates.                                                                   [B]Elliot Wave Outlook:[/B] 139.17 may have been the top and the count above shows why.  The rally from 112.04 can be counted as an impulse in the C wave position (wave iv of the rally is a triangle).  It is noteworthy that the rally stalled in the center of the former 4th wave’s price area.  This is common.  A breach of 139.17 would suggest an extended 5th wave and expose the 61.8% of the decline from 170 at 148.50.                                                                                 

                                     [B] EURO / BRITISH POUND[/B]

                                                                        [B]Classical Outlook: [/B]The market continues to extend declines to fresh 2009 lows into the lower 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’s should be used as opportunities to build on existing shorts.                                                                   [B]Elliot Wave Outlook:[/B] The EURGBP trend is down as long as price is below .8870.  Staying beneath there keeps the pair on a path lower towards the area of the former 4th wave at .7690-.8190.                                                                                 

                                     [B] EURO / CANADIAN DOLLAR[/B]

                                                                        [B]Classical Outlook: We had been recommending establishing 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 in early June. 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. Only back under 1.5595 gives reason for pause.[/B]                                                                   [B]Elliot Wave Outlook:[/B] Failure to hold above a support line from late 2007 favors additional weakness.  Staying below 1.6014 keeps the trend pointed down.  Weakness from the December high at 1.7522 may be a series of 1st and 2nd waves.                                                                                 

[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.