The EURUSD remains in the range that has held since late April. We view the correction as wave 4 within the advance from 1.1640. Wave V will take the EURUSD higher eventually; maybe even above 1.70, but wave IV (corrective pattern) may not be complete. Instead, wave IV could be unfolding as an expanded flat; which would not end until below 1.5283. The EURUSD has slipped below the trendline drawn off of the August 2007, February 2008, and June 2008 lows; which favors bears.
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We wrote Friday that “the drop below 1.5521 this morning makes it highly likely that the EURUSD is headed lower and quickly. Price should remain below 1.5699 going forward.” The EURUSD failed to accelerate lower and the decline from 1.5699 is not impulsive, therefore the short term count has been altered. We remain bearish bigger picture but expect a rally through 1.5699 before the decline resumes. The 38.2% of 1.6039-1.5521 at 1.5719 may serve as resistance, as could the 21 day SMA (currently at 1.5745).
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One count treats the drop from 124.13-95.72 as a W-X-Y decline (7 waves, which is corrective). However, it is not clear where this fits in the larger pattern (take a look at the monthly, and it is quite clear that the USDJPY has broken from a 4th wave bearish triangle). The other count is that the decline from 124.13 is a leading diagonal. Under this count (and given near term weakness), the entire advance from 95.72 is unfolding as a second wave. As long as price is below 108.57, it is possible but not probable, that a wave 2 top is in place. If the drop from 124.13 is indeed a leading diagonal, then expect a deeper retracement (leading diagonals often give way to a 78.6% retracement). If wave b of 2 is complete at 103.76, then wave c = wave a at 116.61. Additionally, the 21 day SMA crosses above the 200 day SMA on Thursday for the first time since April 07 (which preceded the advance to 124.13).
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The USDJPY remains choppy. To review, the rally from 95.72 is in 3 waves but so too is the decline from 108.57. This structure indicates that the USDJPY will continue higher to complete the correction from 95.72. Short term, weakness is possible in either wave c of a triangle (red letters) or in a small 2nd wave that serves to correct the advance from 103.76. Potential support is in the 106.00/50 zone as well as the 6/30 low at 104.99. Strategically, the best play is a playing bullish break through 108.57, against 106.06.
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Bigger picture, a 5 wave advance from 1.7047 is complete at 2.1160. Therefore, a large 3 wave correction is underway from 2.1160. The first leg of that correction (A) is complete at 1.9337. With the rejection of strength at 2.0156 last week, the triangle count (as wave B) seems to be the correct count. If so, then the drop from 2.0156 is wave d. Cable should advance in the final leg of the triangle (wave e) but end below 2.0156 before the decline from 2.1160 resumes.
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This is a closer look at the triangle. Last week, we wrote that “it is likely that wave d of the triangle is underway towards 1.9550/1.96.” Wave d should end this week and give way to the final leg of the triangle. We’ll look for a top and reversal late this week or next week in order to position for the expected drop below 1.93 that will complete the entire bear sequence from 2.1160.
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We advance from .9647 is corrective but recent price action makes it probable that the .9647-1.0624 advance was just the first wave in a complex correction. The reason for the change to the count is that the drop from 1.0624 is corrective as well. Expect a push through 1.0624 over the next few weeks / months in order to complete wave 4.
Similar to the EURUSD count, we’ve altered slightly the short term USDCHF count (from 1.0010) to reflect our expectations for a decline near term before the advance continues. Support should be strong just above 1.03 (1.0315 is the 7/25 low).
Regardless of the larger pattern, the advance from .9055 is unfolding as a large correction. However, wave C (often the strongest leg of a correction) has yet to commence. A triangle is complete as wave B within an A-B-C pattern and expectations are for a break through 1.0378 soon.
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The USDCAD is preparing to break out from its 6 month triangle. This bullish break will complete a 3 wave corrective advance from .9055. Objectives are in the 1.05-1.08 zone. We’ll look to identify support and lessen risk as the advance matures. The USDCAD is vulnerable to a pullback near term though. Support begins at 1.0212.
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The weekly chart of the AUDUSD puts into perspective just how significant of a top may have formed at .9849. The AUDUSD spiked through the upper channel line two weeks ago and broke a support line drawn off of the August 2007, January 2008, and June 2008 lows last week. The most recent swing low (6/12 low at .9327) was broken Friday, putting an end to the series of higher lows. The AUDUSD has most likely completed a corrective advance from 2001 and a multi-year bear market is probably underway. Watch for support at the 200 day SMA near .92.
This is a count that caught our eye this morning. The line extended from the wave ii and iv highs produces is parallel with a line that extends off of the wave iii and iv lows. A dip below .9283 is possible but expect a large countertrend advance this week before the decline resumes. If this count is correct (in which wave iv is extended), then a rally all the way back to .96 is possible. .9475 is expected at minimum.
Kiwi is a bit ahead of the AUDUSD in terms of its longer term structure. The decline is clearly more mature but still has a ways to go. Price should remain below .7761 going forward. The trendline drawn off the June 2006 and August 2007 lows gave way last week, further bolstering the longer term bearish bias and call for the decline to ultimately end below .5927.
The NZDUSD has entered a long term decline. Our longer term objective is not until below .5927. However, there will be countertrend movements along the way, one of which is probably underway now. With 5 waves down from .7761 (as wave 1 of 3 of C), expectations are for a countertrend rally to end near .7467 (former congestion) late this week or next week.
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