Since the US dollar bottom in June, major currency pairs have traded in a range. Technically, the dollar looks vulnerable given the failure to maintain gains earlier in the week. Breakouts would expose the EURUSD December high at 1.4720 and GBPUSD 1.7000. Structurally, it remains possible that a USD bottom is in place but odds are quickly shifting in favor of one more dollar decline prior to completion of the correction from last October.
[B][U] EURO / US DOLLAR[/U][/B]
[B]Classical Outlook: [/B]The market has been locked in some sideways trade since breaking below the neckline of a major head & shoulders top formation on June 15. However, we classify the recent price action as a bearish consolidation and look for an eventual break lower below 1.3850 to confirm our outlook and expose the measured move h&s objective by 1.3250. An ideal lower top is now sought out below 1.4210 (78.6% fib retrace of 1.4340-1.3750), with only a sustained break above to negate and give reason for pause. [B]Elliot Wave Outlook:[/B] The question at hand is whether or not 1.4723 will give way before resumption of the larger decline. 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.” The drop to 1.3747 is in 3 waves and a rally above 1.4140 would shift the odds in favor of a breakout above 1.4340 and eventually above 1.4720.
[B] [U]BRITISH POUND / US DOLLAR[/U][/B]
[B]Classical Outlook: [/B]The breakdown that we have been anticipating over the past several days is taking longer to materialize, with the market caught in some sideways consolidation. However, any rallies have been well capped below the 2009, 1.6665 lows, with failed attempts resulting in lower tops by 1.6620 and most recently by 1.6605 on Wednesday. Key support comes in by the consolidation lows at 1.6185 with a break and close below to accelerate declines towards the critical 1.5800 neckline of what would be a very awkward topping formation. Only back above 1.6600 would negate. [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. BUT, the consolidation since 1.6667 may very well be a triangle that leads to a thrust into 1.70 prior to a reversal.
[B] AUSTRALIAN DOLLAR / US DOLLAR[/B]
[B]Classical Outlook: [/B]Dips have been very well supported in the 0.7800 area 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 weeks, but this has failed to play out with the consolidation 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 as long as price is below .8124. A rally above there favors strength through .8269 prior to a reversal.
[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, with any rallies being well capped below 0.6500. The 0.6500 psychological barrier is also the 78.6% fib retrace off of the major 0.6600-0.6155 move and we continue to favor selling on rallies towards the figure in anticipation of an eventual resumption of setbacks back below 0.6155 over the coming days. A close above 0.6500 will however give reason for pause. [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. This favors a reversal. However, near term momentum favors bulls and a break above .6600 would expose .7000.
[B] US DOLLAR / JAPANESE YEN[/B]
[B]Classical Outlook: [/B]For now, it looks like the market is content on trading within a broad range, loosely defined between the 94.00-100.00 area. With the price now gravitating to the bottom of the range, there is scope for additional weakness down towards the 93.55-85 over the coming days. Only back above 96.60 would delay bearish outlook. [B]Elliot Wave Outlook:[/B] The triangle continues to play out but there is an alternate bearish count in which the drop from 101.50 is a series of 1st and 2nd waves. 93.50 defines the trend (above is bullish and below is bearish). It is as simple as that. It is noteworthy that the pair is back below the 200 day SMA, which is sloping down.
[B] US DOLLAR / CANADIAN DOLLAR[/B]
[B]Classical Outlook: [/B]Continues with the recovery from the 2009 lows posted by 1.0785 on June 1, reaching 1.1640 on Thursday ahead of the latest minor setbacks. However, any setbacks are seen as limited from here with the market adhering to a well defined bull channel. Look for a fresh higher low above 1.1220 and ideal in the 1.1400 area ahead of the next upside extension towards key medium-term resistance by 1.1820. Only back under 1.1200 would give reason for concern. [B]Elliot Wave Outlook:[/B] The USDCAD rally from 1.0782 is unfolding as an impulse, which composes wave i of the next 5 wave rally. Once complete, a small second wave decline will unfold, warranting bullish action against 1.0782. The pattern should unfold over several weeks.
[B] US DOLLAR / SWISS FRANC[/B]
[B]Classical Outlook: [/B]The market was successfully propped ahead of 1.0590 on Wednesday, before a jackknife reversal back above 1.1000. The result, has been the formation of more of a double bottom-like pattern which confirms the prospect for medium-term basing and opens the door for fresh upside over the coming weeks back towards the 1.1500 area. Any setbacks are now expected to be well supported in the mid-1.0700’s. [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 have been wave 4 of a diagonal. 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 bearish close ends a sequence of consecutive higher lows and 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. 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 (common).
[B] EURO / BRITISH POUND[/B]
[B]Classical Outlook: [/B]The market continues to extend declines to fresh 2009 lows by 0.8400’s thus far. Weekly studies still show plenty of room to run and we look for additional setbacks towards the 0.8200 area. Any rallies back into the 0.8600’s should be used as opportunities to build on existing shorts. Despite the latest positive weekly close, the market has still managed to put in a fresh lower high and lower low to keep the pressure on the downside. [B]Elliot Wave Outlook:[/B] The EURGBP trend is down as long as price is below .9085. Staying beneath there keeps the pair on a path lower towards the area of the former 4th wave at .7690-.8190. There is a bullish alternate that treats the decline from the December 2008 high as an A-B-C decline (wave B is a triangle). There is little confidence in direction.
[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.