Top Currency Trading Ideas for the Week of April 21, 2008

As long as the EURUSD is below 1.5956, additional weakness is expected. Additionally, the big USDJPY rally is viewed as a bounce in a longer term downtrend.


We have changed our outlook (on the daily) slightly. The revised count is more bearish than before since expectations now are for a larger degree 4th wave correction. 4th waves usually end in the territory of the 4th wave of one less degree; which does not begin until 1.4967. Under this forecast, a multi-week (maybe multi-month) top will form soon (there is a chance that a top is in place at 1.5983…see below).

Visit our recently updated Euro Currency Room for specific resources geared towards this currency.


For a more detailed look at the EURUSD, please visit our Special Report, published last Thursday. The EURUSD has either topped at 1.5983 or will make one more high before rolling over into a large 4th wave that will last a few months and probably bring the pair back into the 1.40s. The two scenarios are; 1.5983 completed a B wave (already topped), 1.5983 is wave iii within an ending diagonal. If a top is in place at 1.5983, then the EURUSD needs to remain below 1.5956.

Visit our recently updated Euro Currency Room for specific resources geared towards this currency.


Longer term, we maintain that a 12 year triangle ended at 124.13 in June 2007 and that the USDJPY is headed lower for a test of its 1995 low at 81.12. The rally from 95.72 is viewed as wave iv within the 5 wave decline from 117.93 If this count is correct, then the USDJPY must remain below 107.20 (the bottom of wave 1 of the same degree). There is potential resistance from the 1/23 low at 104.95 and the rally from 98.56 equals the 95.72-102.95 rally at 103.88.

Visit our recently updated Yen Currency Room for specific resources geared towards this currency.


The best count for the USDJPY from 95.72 is a double zigzag (a-b-c-X-a-b-c). With the second zigzag (wave Y) close to equal with the first zigzag (wave W), a bearish bias is warranted against 104.64. Those with a longer term horizon can keep risk above 107.20.

Visit our recently updated Yen Currency Room for specific resources geared towards this currency.

STRATEGY: Bearish, against 104.64, target below 95.72


The GBPUSD declined in 5 waves from 2.1160, indicating that a significant top is in place. The 5 wave decline is viewed as either wave 1 in a 5 wave bear cycle or wave A in a 3 wave bear cycle. In other words, longer term bearish potential is great. The rally from 1.9337 is either wave 2 or B and is complete at 2.0396. The decline should accelerate this week or next if a 3rd wave lower is underway. The alternate is still longer term bearish but treats the decline from 2.0396 as wave X in a complex correction.

Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.


We are treating the drop from 2.0396 as a leading diagonal (wave 1 of C within the A-B-C decline from 2.1160). Under this interpretation, the GBPUSD rally from 1.9599 is wave 2 within the 5 wave drop (wave C) from 2.0396. The pair failed Friday morning at the 50% of 2.0396-1.9599 at 1.9998; which may be the top of wave 2.

Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.

STRATEGY: Bearish, against 1.9997, target below 1.9337


One possible count treats the drop from 1.1105 as wave 5 within a 5 wave drop from 1.3295. Under this count, a major low is in place at .9647 and the USDCHF will work higher over the coming weeks and months towards Fibo resistance; which does not begin until 1.0840. An alternate treats the rally from .9647 as a correction, meaning that the USDCHF will register one more low before a larger bounce.


“The rally through 1.0249 confirms that the C wave we had suspected was underway is underway. The 100% extension of .9647-1.0249/.9871 at 1.0473 is an initial bullish objective.” The USDCHF must remain above .9887 (and preferably above .9940) if this count is to be proved correct.


The decline from the 2002 high at 1.6189 may be complete as a long term double zigzag corrective decline. If this count is correct, then a multi-year low is in place for the USDCAD.

Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency


“The rally from .9710 to 1.0324 is in 5 waves, confirming that the larger trend is up. We are treating the decline from 1.0324 as a 3 wave correction (a-b-c). Wave c would equal wave a at .9967 and the 61.8% of .9710-1.0324 is at .9945. Yesterday’s low was just above this level and may be the wave 2 low. A bullish bias is warranted against .9710 although price ideally remains above .9987.

Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency

STRATEGY: Bullish, against .9710, target above 1.0324


Longer term, the AUDUSD is in the process of forming a major multi year top. We view the advance from the 2001 low as an A-B-C advance. The rally from the 2004 low at .6771 is wave C. The rally through the November 2007 high at .9400 satisfies minimum expectations for wave 5 of C from .8512. However, it is not confirmed that a top is in place yet. In fact, a push through .9496 may be required in order to complete the final leg of a diagonal.


If the rally from .9031 is wave v of a diagonal (and more specifically wave c of v), then the advance from .9031 is counted as a series of 1st and 2nd waves. The AUDUSD must remain above .9272 and short term support begins at .94 and extends to .9337. An objective is a 161.8% extension at .9713.

STRATEGY: Get bullish near .9380, against .9272, target near .97


The NZDUSD has held above trendline support so far, but a break of .7781 would likely give way to a price smash. The long term count calls for a C wave that eventually ends below .5927. Near term, a larger bounce is certainly possible, especially given the bullish AUDUSD count.


With 5 waves up from .7781 and 3 waves down from .8024, it appears that the NZDUSD will at least exceed .8024 and test measured resistance at .8069. The decline from .8215 is unclear so a new high in the coming weeks is possible. Remember though that the long term count strongly suggests a big reversal soon. We’ll look to sell strength.

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[1] STRATEGY is a quick summary of our best technical ideas. The ideas are subjective and are subject to change everyday although trades are typically held for at least a few days and sometimes a few weeks or more. Ideas are also included for crosses throughtout the week; these are published at separate articles at DailyFX.

[2] TREND ANALYSIS is based on a rolling pivot model. LONG TERM TREND is determined by the last 3 months of price data (high, low, close). SHORT TERM TREND is determined by the last 4 weeks of price data (high, low, close). R3, R2, R1, PL, PH, S1, S2, and S3 are provided to aid in identifying entries and exits. These are objective measures and our subjective analysis (STRATEGY) may differ.

[3] ELLIOTT WAVE VIEW is our assessment of both the longer term (DAILY BARS) and shorter term (60 MINUTE BARS) EW structure. This is the basis for our STRATEGY.