Greenback Impulse Rally Underway -- Look for Extension

[B]- Euro Tumbles

  • Japanese Yen Remains Weak
  • British Pound Breaks Below 1.9700
  • Swiss Franc Headed to 1.2500
  • Canadian Dollar 29 Year Lows
  • Australian Dollar Objective at .8127
  • New Zealand Dollar Objective at .7161[/B]

EURUSD - As long as price is below 1.3531, our working assumption is that either a 3rd wave or a C wave is headed lower. Short term measured objectives are at the 100% of 1.3680-1.3462/1.3609 at 1.3391 and the 161.8% extension at 1.3256. Longer term, there is the possibility that a multi-month top is in at 1.3680 and that the EURUSD is headed much lower (towards 1.2500). Potential support is near current price at the 55 day SMA (1.3433) and a daily close below there increases our confidence in the bearish outlook. We are showing the longer term weekly chart today and our favored wave count - which has the EURUSD coming under 1.1638 by mid 2008. Even an alternate count favors the EURUSD dropping to 1.2500. Speculators positioning is plotted below (COT).

USDJPY - From Friday, “the C wave down that we have been looking for in the USDJPY may be under way. The form of the decline on the way down will clue us in to the bearish potential. A break below the support line drawn off of the 4/19 and 5/11 lows (just above 120.00) may lead to increased selling pressure. A slight new high (above 121.38) is possible in order to complete a small degree 5th wave before a reversal. The chart today points to the fact that the entire rally from 115.14 is corrective, while the preceding decline was impulsive.” The new high has been registered and there are 5 waves up from 119.46 so at least a period of corrective decline is expected. The USDJPY is approaching significant resistance from the 2/22 high at 121.63.

GBPUSD - Cable continues to break down as price is now below 1.9700. We mentioned Friday that a" short term measured objective is at the 100% extension of 2.0131-1.9841/1.9997 at 1.9707 but we expect this decline to eventually challenge the 161.8% extension at 1.9528." Former daily lows from late March/early April are at 1.9545/89 (there is a trendline dating to June 2006 there as well). At this point, the pattern from 2.0131 appears to be playing out as a double zigzag (which is what we suspected was playing out earlier in the week) - which points to lower levels. Price has dropped under the 55 day SMA also (the 100 day is at 1.9661).

USDCHF - As we have continued to suggest, “the impulsive action from 1.2124 may be the beginning of a 3rd wave advance. Ultimately, we expect this rally to span weeks and target 1.2571.” A diagonal from 1.1993 may have kicked off the party and a measured objective for the end of wave 3 is not until 1.2493. The pair is pushing against the 200 day SMA right now, which may offer some resistance. The 3/9 high at 1.2354 is the next hurdle on the chart. The bullish trend is strong as long as 1.2221 holds.

USDCAD - We maintain that a 5th wave decline (5th of the 3rd) is close to a bottom and that a period of consolidation/pullback will occur in a 4th wave back to 1.1168. Daily momentum studies favor this view. The pullback should prove corrective and give way to lower levels. Since the 2nd wave correction was sharp, expect the 4th wave correction to be a flat or triangle and top near 1.1168 (the wave 2 pullback lasted about a week so the 4th wave should last about a week as well).

AUDUSD - We maintain that a C wave decline is underway towards the 100% extension of .8390-.8168/.8349 at .8127. Bears are in control as long as .8256 remains intact. .8127 would be where wave C would equal wave A (55 day SMA at .8149).

NZDUSD - Kiwi is in the same position as the AUDUSD. That is, a C wave lower appears to be unfolding from .7403. We are bearish against .7403 and looking for a decline to where wave C would equal wave A at .7161. Potential short term support may come in from the 55 day SMA at .7230. The most aggressive count has the Kiwi breaking below .7264 while .7316 remains intact.