We are concerned about the bullish bias due to a WSJ headlines this morning; “Dollar Likely to Extend Downward Euro Spiral”. Reporters are almost always wrong when attempting to forecast as they are representative of the public and tend to decribe what has already happened. 1.5611 remains the bullish line in the sand. USDCAD and NZDUSD present the clearest pro-USD trades.
We maintain that the EURUSD is headed to a new high in order to complete wave V within the 5 wave advance from 1.1640 (although it is possible that a flat unfolds and that the wave IV ends closer to 1.45). As long as price is above 1.5611, we are treating the wave IV correction as a triangle (complete at 1.5468). Objectives are in the mid 1.60’s and near 1.70.
Visit our recently updated Euro Currency Room for specific resources geared towards this currency.
As mentioned, as long as price is above 1.5611, our preferred count treats the consolidation from 1.6018 to the end of June as a triangle in the wave IV position (within the 5 wave advance from 1.1640). From the 6/23 low on 1.5468, the EURUSD has rallied impulsively, declined correctively, rallied impulsively, and is currently declining (correctively to this point). The drop from 1.6039 is viewed as wave ii of 3. Look for support near 1.57 today or tomorrow. However, we are concerned about the bullish bias due to a WSJ headlines this morning; “Dollar Likely to Extend Downward Euro Spiral”. Reporters are almost always wrong as they are representative of the public. Keep this in mind.
Visit our recently updated Euro Currency Room for specific resources geared towards this currency.
STRATEGY: Bullish, against 1.5611, targets 1.6325 and above
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.
Visit our recently updated Yen Currency Room for specific resources geared towards this currency.
We were expecting the USDJPY decline to accelerate lower in a larger 3rd wave. This is still possible as long as price below 107.75 but the rally from 103.76 looks impulsive and the preceding decline is clearly in 3 waves to this point.
Visit our recently updated Yen Currency Room for specific resources geared towards this currency.
STRATEGY: Bearish, against 107.75, targets 101.97 and below
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. We previously favored the idea that the B wave top was in place at 2.0397 but the way in which the decline has unfolded from there gives more weight to the alternate count; that treats wave B as a complex correction that will not end until above 2.0397. The expected rally is underway now.
Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.
Wave C of a triangle may be complete at 2.0156 and wave D could be underway now. However, we favor the count that treats the advance from 1.9364 as wave C of a flat, which will not end until above 2.04. The red line on this chart is the 200 day SMA, which the GBPUSD is holding above. Keep risk at 1.9810 and look for support in the 1.9884-1.9925 zone.
Visit our recently updated British Pound Currency Room for specific resources geared towards this currency.
STRATEGY: Bullish, against 1.9810, target TBD
The advance from .9647 unfolded in a corrective manner; therefore the rally was labeled as wave 4 within the 5 wave drop from 1.3285. A new low is expected (below .9647) in the coming months (just as a new high is expected in the EURUSD). The risk to this outlook is a larger more complex correction unfolding and ending near 1.10.
The short term picture remains clouded. When in doubt, focus on facts. The facts are that the rally from .9647 is in 3 waves and that since early May the USDCHF has made a series of lower highs. This evidence is bearish. As long as price is below the most recent high (1.0352), a bearish bias is warranted. 1.0250 may provide resistance. However, the decline from 1.0624 is not impulsive therefore confidence in the bearish bias is 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 nearing completion as wave B within an A-B-C pattern (which may be wave A of the next larger degree). Wave C should surge through 1.0378 in the next few weeks.
Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency.
Wave E is still underway but is nearing an end. E waves (as we’ve written here often) are usually sharp and the decline has accelerated. In fact, do not be surprised to see a test of the lower triangle line near .99 before the USDCAD turns up. We’ll look to identify the bottom this week.
Visit our recently updated Canadian Dollar Currency Room for specific resources geared towards this currency
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. Short term charts indicate additional upside potential but we’ll attempt to identify the top as the pattern unfolds.
The AUDUSD setback has reached and bounced from just above the 50% of .9475-.9849. The drop from .9849 is clearly in 3 waves (corrective) to this point; therefore evidence continues to support bulls. A cautious bullish bias is warranted against .9677.
The break of a support line drawn off of the 8/17/07 and 1/22/08 lows suggests that the wave C decline has started. The long term count calls for this C wave to eventually end below .5927.
`
The NZDUSD fell sharply yesterday but a drop below .7587 is required in order to make the decline from .7761 an impulse and suggest that the trend has turned back down. Until then, gains (albeit correctively) are still possible.
[B]Tell us what you think about this report: contact the strategist about the article at <[email protected]>[/B]