Expect a dollar rally to begin the week. This opportunity should be used to establish / add to long standing USD bearish positions. The exception is the Canadian dollar.
We maintain that the EURUSD 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 is nearing completion, possibly as a triangle. If a triangle, then the wave IV price extreme is already in place at 1.5283. Another possibility is that a flat is unfolding. In this case, the EURUSD would slip below 1.5283 before wave V begins.
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The EURUSD is expected to exceed 1.6018 and continue on to all-time highs in the next few weeks. As mentioned though, a triangle may be unfolding. The advance from 1.5303 would be wave D and wave E would begin from below 1.5843 (now). E waves of triangles are usually sharp and deep; so it is probable that the decline would continue until 1.53/1.54. Still, remain bullish against 1.5468 since the larger pattern is bullish and since there is the possibility that wave IV is already complete.
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STRATEGY: Bullish, against 1.5468, target above 1.5843 (but beware of the triangle potential)
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 could be a completed wave 2. If so, then wave 3 down is in its early stages.
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The USDJPY decline from 108.57 could be the beginning of larger wave 3 (as mentioned). However, it is not yet safe to enter from the short side. We’ll wait for the drop from 108.57 to unfold in 5 waves or for the advance from 104.99 to unfold correctively (in what could be a small wave ii of 3). Potential resistance is in the 106.30/107.10 zone.
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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. We wrote last week that “the rally should be strong. 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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A C wave (of either a triangle or flat) is underway. If a triangle, wave C likely continues until 2.02 (March 27 top). If a flat, wave C will continue through 2.04. Near term, look for support near 1.98.
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STRATEGY: Bullish, against 1.9583, target 1 at 2.0175, target 2 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.
The USDCHF is probably on its way to a new low. The advance from .9647 is in 3 waves and therefore corrective. A bearish bias is warranted against 1.0493. Near term, expect resistance near 1.0266 and 1.03.
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.
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This is a close up view of wave E. There is the possibility that the wave E decline is complete at 1.0047 but E waves are usually deeper. As such, it is probable that we see a drop next week that ends closer to 1.00. There are Fibo levels at 1.0010 and .9926. Look for a bottom and reversal near these levels. This outlook is intact as long as price is above .9818.
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STRATEGY: Bullish, against .9818, target above 1.0324 (but a test of 1.00 is probable in wave E of the triangle)
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 push through .9653 satisfies minimum expectations for the rally from .9327. Also, the advance is in 5 waves (with an ending diagonal) so a correction, probably back to former support near .95, is expected.
STRATEGY: EXIT
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.
Bigger picture, the NZDUSD is expected to advance to the 50% of .7921-.7445 at .7683 and perhaps even the 61.8%-78.6% at .7740-.7920. A rally to there would fill the 6/4 gap. The up-down sequence from .7445 is probably waves A and B. Wave C is considered underway as long as price is above .7445. As such, a bullish bias is warranted against .7445 (for a push through .7646).
STRATEGY: Bullish, against .7445, target TBD
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