Japanese Yen Objective at 115.53: Beware of Large Correction

  • Euro Loses 1.3500
  • Japanese Yen Nearing Completion of Large Wave 1
  • British Pound Headed Towards 1.9700
  • Swiss Franc 1.2165 May be Taken Out
  • Canadian Dollar 3rd Wave
  • Australian Dollar .8162 Potential Support
  • New Zealand Dollar at Potential Reversal Point

Commentary: We wrote yesterday that “to favor the downside as long as price is below 1.3625. Look for a test of 1.3445 in the next few days.” A test of 1.3445 looks inevitable now as price is below 1.3500 now. The extent of the decline from 1.3838 makes it highly unlikely that this decline is a C wave. Instead, it is much more likely that this decline is a 3rd wave. Price is likely to consolidate soon in a small wave 4 before completing the 3rd wave decline from 1.3838 (in its 5th wave). The chart above details what we are expecting to occur.

Strategy: Remain Bearish, move risk to 1.3608 (from 1.3625), target 1 hit at 1.3600, next target at 1.3445

Commentary: While the small correction that we were looking for failed to play out, the USDJPY has registered a new low (beneath 117.18), which satisfies minimum expectations for the completion of wave 5 within the 5 wave decline from 124.13. Looking at the structure of the 5th wave, a 4th wave correction is needed before wave 5 of 5 completes the sequence. The next move of consequence is likely a large wave 2 correction back towards 120.00 (this may be in a week or two though) although we do expect the pair to chop lower in the near term (possibly towards 115.00). A measured objective is where wave 5 would equal the price distance of waves 1 through 3, at 115.53.

Strategy: Flat, we will be waiting for the larger wave 2 to unfold before getting aggressive

Commentary: We wrote yesterday that “with Cable appearing to be subdividing lower, continue to favor the downside and a test of 1.9700, as long as price is below 2.0132.” The GBPUSD has continues to slide and is now below 1.9900. We maintain that 1.9700 will be tested before the week is over. The wave structure is the same as the EURUSD. That is, wave 3 down has been unfolding since 2.0462. Within wave 3, the decline from 2.0397 is a third wave. Therefore, look for a corrective 4th wave to play out before a test of 1.9700 and completion of wave 3 from 2.0462. A larger 4th wave would then be expected.
Strategy: Remain bearish, against 2.0132, target 1 hit at 2.0000, next target at 1.9700

Commentary: The USDCHF has rallied but remains below 1.2165. A push through 1.2165 would do wonders for the longer term bullish outlook. We had been looking for price to continues lower towards 1.1400 following the break of the 14 month triangle. Thrusts from triangles are terminal, but a triangle that forms for 14 months usually experiences a much more impressive thrust than the one that we saw in the USDCHF. Either way, the triangle that formed from May 2006 is possibly large wave B in an A-B-C correction that began at the November 2005 peak (1.3285). The thrust lower is wave C of this correction. Still, it seems unlikely that wave C would be this small, but a break above 1.2165 would suggest that this is the case. If 1.1815 is the bottom of wave C, then the USDCHF is in the early stages of a multi-month (possible year +) rally.
Strategy: Flat

Commentary: We wrote yesterday that “we see it as highly likely that the rally from 1.0484 is the beginning of a third of a third wave. This is the position that often sees the market move the fastest. We expect the rally to accelerate in the next few days.” The USDCAD has rallied over 200 pips from yesterday morning. The only question is whether or not the rally from 1.0462 is a wave 3 or a wave C. If price rallies much above 1.0821 (100% extension of 1.0340-1.0699/1.0462), then it is likely that the rally is a wave 3 and is headed for a test of the 161.8% extension at 1.1043. From a subjective standpoint, we favor the impulse rally scenario (wave 3) and the idea that the USDCAD has put in a multi-year low at 1.0340. Short term support is at 1.0712. See our special report from July 31 for a longer term outlook at USD/CAD : Going to 1.40?
Strategy: If already bullish then remain so, against 1.0641, target 1.0821 and 1.1043. If not, then sit tight as the current reward to risk does not justify entry

Commentary: We wrote yesterday that “we are looking for a drop to .8235.” The Aussie has dropped below .8235 and the next level of potential support is the 5/29 low at .8162. Remember that the longer term structure suggests that the drop from .8870 is a wave 4 and that a new high will be registered (above .8870) before a bigger decline corrects the rally from .7268. For this bullish count to remain favored, price needs to bottom close to (or above) .8162.
Strategy: Flat

Commentary: We wrote yesterday that “a measured objective for the end of the decline is the 100% extension of .8108-.7553/.7701 at .7146. Continue to favor the downside and test of the mentioned levels.” Kiwi is right at the objective of .7146. Considering the longer term bullish AUDUSD count (and the fact that the NZDUSD is highly correlated with the AUDUSD), and the idea that Kiwi has broken lower from a triangle (triangle breaks are terminal), we think it highly probable that the pair finds a bottom near current price. However, there is no evidence of a bottom. We will not take action until we see evidence of one. A drop to .6803 (161.8% extension) would strongly indicate that the longer term bullish idea is wrong. We would then look to sell a corrective rally.

Strategy: Flat
***JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend. JTREND uses the last 4 weeks of price data (highs, lows, closes). An example is below. Blue bars denote bullish trend and red bars denote bearish trend. The chart below is the EURUSD weekly chart.