The EURUSD and GBPUSD appear to have finally bottomed for at least a few weeks. Near term, the pairs should advance slightly more before undergoing very short term corrections. Those dips present opportunities.
As long as the EURUSD is above 1.5283, we maintain that the pair is headed to a new high in order to complete large wave III within the 5 wave advance from 1.1640. A correction in wave IV will then take place back to the low 1.40s. Potential bullish targets are 1.6229 and 1.6763.
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The preferred count that calls for strength for current levels is intact as long as price is above 1.5283. A drop below there indicates that a C wave is underway towards 1.5108 (100% ext. of wave A from 1.6018) or even 1.4653 (161.8% ext.). We wrote Friday that “the pattern should resolve itself in the next day or two.” The pattern has resolved itself and a low should be in place at 1.5303. Very short term, a small 2nd wave is probably complete at 1.5345.
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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. In [I]Elliott Wave Principle,[/I] it is stated that second waves following a leading diagonal often retrace 78.6% of the diagonal. Therefore, both counts suggest strength until 113/118 (roughly the 61.8% to 78.6%). The next short term move could be down in a b wave though (assuming that the advance from 95.72 is wave a).
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The advance from 95.72 is most likely corrective, but there appears to be additional upside potential. The first leg of the correction (95.72-105.70) consists of overlapping waves and is the first wave of a 3 wave sequence. The advance has formed a channel and the upper end of the channel is not until the 111/112 area. Also, the wave from 102.58 would equal the 95.72-105.70 advance at 112.62. Near term support is near 106.50.
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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. 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. Most final legs of corrections are strong moves and serve to convince the majority of market participants that the previous trend (in this case, up) is back underway.” The expected rally is underway now.
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Minimum expectations are for this advance to continue until at least 1.9850. The rally from 1.9409 is unfolding as an impulse, which inspires confidence in our bullish count. Look for support near 1.9600/25. A short term correction should unfold in the next day or two. This will be the opportunity to get long.
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STRATEGY: Get bullish near 1.96, against 1.9456, target above 1.9850
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.
“There is little doubt that the advance from .9647 is corrective because a triangle separates the two legs. The only question is whether or not the rally from .9647 is a complete 3 wave rally or just the first wave of a larger more complex correction.” The down-up-down-up sequence since the 1.0624 top is most likely a series of 1st and 2nd waves. Expectations are for this decline to come under 1.0147 in a 3rd of a 3rd within the next week or two. A bearish bias is warranted against 1.0519.
STRATEGY: Bearish, against 1.0519, target below 1.0147
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.
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The minimum objective that we have cited for some time is above 1.0324. However, the alternate (in red) has yet to be disproved. In the case of the triangle, the rally from .9818 would be wave D of the triangle to be followed by wave E lower that ends near .98/99 and then a bullish breakout. A push through 1.0322 could complete wave 1 of 3 of C as well.
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STRATEGY: Bullish, against .9967, target above 1.0324 (but should be in about half of normal position now)
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 has fallen below the trendline that had held since late January but there is no sign of a reversal as the decline still counts better as a correction. “The rally from .8952 is wave C of a large 5th wave diagonal that could extend to a measured objective just below 1.00 in coming weeks (.9936).” Not until we see a 5 down or a drop below .9273 would we consider adopting a bearish bias. In fact, the very near term pattern is bullish as long as price is above .9333 (ideally above .9369).
STRATEGY: Bullish, against .9333, target TBD
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.
Near term, a 4th wave is working towards resistance from the 6/11 high at .7578 and the 38.2% of .7891-.7445 at .7615. However, we do not know what the form of the rally will be. The most likely patterns to unfold are a triangle or a flat.
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