New Zealand Dollar High Probability Bearish Opportunity

  • Euro Correcting Before Next Leg Lower
  • Japanese Yen 122.13 Remains Key
  • British Pound Tracing Out Wave 2
  • Swiss Franc 5 Wave Move
  • Canadian Dollar Correcting In Wave 4
  • Australian Dollar In Short Term Wave C Down
  • New Zealand Dollar Ready to Plummet In Wave 3

Commentary: The inability to hold above the 6/1 low at 1.3392 and the break under the trendline drawn off of the October 2006 and January 2007 lows indicates additional bearish potential. The next support level is the 100% extension of 1.3680-1.3392/1.3552 at 1.3264. Former support at 1.3392 should be solid resistance now. The pair has stalled at the 100 day SMA, a break under here would be significant as the EURUSD has traded north of this moving average for all of 2007. Very short term, the EURUSD may be in a small 4th wave that will lead to a drop below 1.3319 before the a 3 wave correction higher occurs. We will be looking for this correction to align with the downtrend. This scenario is depicted on the chart above.

Strategy: Waiting for a 3 wave setback in order to align with the downtrend.

Commentary: We remain bearish against 122.13 but the rally from 120.75 has been sharp and is close to the 78.6% of 122.13-120.75, so the pair needs to roll over soon. We are anticipating a move lower in a 3rd wave, below 120.75, towards 119.50. In summary, as long as 122.13 remains intact, we are bearish.
Strategy: Bearish Now, against 122.13, target TBD

Commentary: Cable has broken under the May low at 1.9676, negating the bullish setup and indicating additional bearish potential. More importantly, the pair has dropped under a support line that dates to April 2006. Given the size of the correction from 1.9621, it is likely that 1.9954-1.9621 was the initial 5 waves down (larger wave 1). This places Cable in wave 2 higher, which should end between 1.9788 and 1.9827. 1.9788 is especially attractive because it is the 50% of 1.9954-1.9621 and the previous 4th wave is at 1.9791. It is also possible that wave 2 is complete since is it possible to count an a-b-c from 1.9621 and the reversal occurred at the 38.2% (1.9748). 2nd waves tend to retrace more than 38.2% of wave 1 though, which is why we are being patient in taking bearish action.
Strategy: Getting bearish at 1.9788, against 1.9954, for a break below 1.9621

Commentary: The daily close above the trendline drawn off of the October 2006 and January 2007 highs instills confidence in the bullish bias and a measured objective is at the 100% of 1.1993-1.2329/1.2145 at 1.2481. As mentioned Friday, this line is also the neckline from a 13 month head and shoulders pattern. From an EW perspective, the rally from 1.2145 is the 3rd of a 3rd wave rally, which often produce the most powerful moves. A rally through the mentioned 1.2481 level gives scope to an a confluence of Fibonacci targets at 1.2687/89 (100% of 1.1877-1.2571/1.1993 and 161.8% of 1.1993-1.2329/1.2145). These are targets that should be reached within 2 to 4 weeks. Near term, risk of a pullback is high as it looks like a clean 5 waves is close to complete.
Strategy: Bullish now, against 1.2145, targeting 1.2500 and 1.2700

Commentary: The 4th wave correction of the 1.1825-1.0548 decline is underway. The projected end for wave 4 is 1.0849-1.1036. 1.0849 seems more likely since that level intersects with channel resistance in 11 trading days. Corrections often unfold in a-b-c form, so we are treating the 1.0548-1.0711 rally as wave a in an a-b-c correction. Wave b may be underway now and could push into the 1.0583-1.0610 area. We are bullish now, against 1.0548, targeting 1.0800.

Strategy: We are bullish now, against 1.0548, targeting 1.0800.

Commentary: We wrote here on Friday that “the decline from .8476 is in only 3 waves, which is corrective, so the trend remains bullish above .8365. However, RSI has declined from overbought on intraday charts and exhibits divergence on the daily, so it seem more likely that this is the beginning of a deeper correction. Yesterday?s long wick and key reversal day also favors the downside. Short term bearish opportunities exist as long as price is below .8443.” A small c wave is expected to unfold from .8447 (or close to it). Measured objectives are at .8336 and .8267 (100% and 161.8% extensions of .8467-.8365/.8447). The longer term structure remains bullish though.
Strategy: Bearish now, against .8467, targeting .8353 and .8300

Commentary: We wrote yesterday that “very short term (15 min chart), there are 5 waves down from the top (.7637), which indicates additional bearish potential. We will look to align with bears on a setback at .7535 and are targeting the May low at .7238. .7637 is the line in the sand.” Kiwi reversed at .7540 early this morning and we are positioned for the next leg down. It is certainly possible that a correction extends higher but as long as .7637 is intact, the structure is bearish. The 161.8% extension of wave 1 is at .7284.
Strategy: Bearish at .7535, against .7637, targeting .7284.

*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend. JTRENDLT is the longer term trend and uses the last 4 weeks of price data. JTRENDST is the shorter term trend and uses the last 5 days of price data. An example is below. Blue bars denote bullish trend and red bars denote bearish trend. The chart below is the EURUSD weekly chart.