Range Continues but Fibonacci Time Relationship Points to Kiwi Reversal

• Euro Treads Water
• Japanese Yen 119.50 Looks Likely
• British Pound Heading Towards 1.9550
• Swiss Franc Breaking From Range?
• Canadian Dollar Mixed Signals
• Australian Dollar Pierces .8200
• New Zealand Dollar Fibonacci Time Relationship

EURUSD – With the EURUSD treading water – nothing has changed regarding our longer term outlook. “We are looking for a significant top due to the 7 wave rally from the November 2005 low at 1.1640. 7 waves is really just two 3 wave structures linked together by an X wave. This is known as a double zigzag and is a countertrend movement.” In the short term, a triangle appears to be forming from the 1.3413 high, thus we are looking for a terminal thrust higher following completion of the triangle. Resistance on a break higher is at the March 2005 high of 1.3483. The triangle interpretation is play as long as 1.3254 holds as support.

USDJPY – The USDJPY has had trouble with the 119.00 figure but wave structure on the hourly chart suggests that 119.11 will be exceeded in order to complete the rally from 116.38. We are looking for a small degree 5th wave to challenge the 61.8% of 122.20-115.15 at 119.51. Regarding the bigger picture, we still think that the decline to 115.15 was the first leg of weakness in a larger bearish sequence. The corrective nature of the rally from 115.15 favors this view. As such, we are looking for a top and reversal close to 119.50.

GBPUSD – Our view on Cable is proving correct so far so there is no reason to change our outlook. “It is hard to say if this is the beginning of protracted weakness but a triple top is evident on the daily (December 2006, January and present highs). With a 5 wave advance from 1.9183, we are looking for at least a return to the previous 5th wave, near 1.9550.” Coming under 1.9663 would bolster the short term bearish case. 1.9826 is critical resistance. Daily CCI has rolled over 100, which supports a more significant reversal.

USDCHF – The USDCHF has crept higher and broken through trendline resistance. The short term subdivisions are not clear but the bigger picture is bullish since the entire decline from 1.2575 can be classified as a double zigzag. The next short term hurdle for bulls is the 3/30 high at 1.2242. 1.2076 should be strong support. Minor support is at yesterday’s low of 1.2175.

USDCAD – There are 2 assumptions two scenarios that we are working with. There are 5 waves down from 1.1828 but that may be the end of a correction (an A-B-C from 1.1879) rather than the beginning of an impulsive move. The way in which this rally attempt unfolds will give us a better idea of what to expect. 1.1640 should be strong resistance. A break of 1.1499 and then 1.1457 would strongly suggest that the USDCAD was on its way to a new low below 1.0927. The break of trendline support also favors the bearish scenario.

AUDUSD – We still maintain that the AUDUSD is nearing the latter stages of a long term rally. Daily RSI continues to hover near the 70 overbought line for the first time since November 2006. The rally from .7680 is in 5 waves which could be the end of the 5th wave in the 5 wave bullish sequence that began in April 2001 (see chart below). If this is the case, then we are near a major top and the next big move is towards .7000. Divergence with RSI at the recent high increases confidence in the call for a top. .8030/40 is initial support. Weekly RSI has reached overbought for the first time since November 2004.

NZDUSD – Kiwi is in the same position as the AUDUSD. The rally from .6720 is now in 5 waves and thus the form is complete so a top and reversal should soon follow. However, there is always the risk that the 5th wave extends. Still, daily oscillators are divergent with the recent high so we believe that the reversal scenario is a valid one. Daily CCI has crosses below 100. There is an interesting time relationship as well. The rally from the May 2004 bottom to the March 2005 high lasted 44 weeks. The decline from the March 2005 high to the June 2006 low lasted 68 weeks. The rally from the June 2006 low has lasted 41 weeks (so far). Kiwi may be exhibiting a longer term rhythm with the 40-odd week rallies but the long term rallies and declines are also in Fibonacci proportion regarding time as 42/68 = .618.