Watch the GBPUSD closely this week. It is possible that Friday’s high at 2.0396 was the top of wave B within the A-B-C correction from 2.1160. If this is the case, then Cable could accelerate lower in the coming days.
The exceptionally strong rally since June 2007 is a 3rd of a 3rd wave rally but is close to an end. The rally from 1.4438 is wave 5 within the 5 wave rally from 1.3261 (and wave 3 within the 5 wave rally from 1.2865). Once the rally is complete, price is expected to come back to the middle of the triangle near 1.4650.
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The EURUSD has extended higher and is closing in on 1.60. A push through 1.5904 would make the rally from 1.5282 5 waves and possibly complete the entire rally from 1.4438. We say this because the rally from 1.4438 can be divided into 5 waves itself as shown on the chart above. 1.5914 is where wave 5 (from 1.5282) would equal 61.8% of waves 1 through 3. Be on the lookout for a top and reversal.
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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. We wrote last week that “there is plenty of room for the USDJPY to fall over the next few weeks and months. There are Fibonacci extensions (161.8) at 97.64 and 98.06.” The USDJPY has reached these Fibonacci levels and looks poised to fall further as the pair completes wave 3 within the 5 wave drop from 124.13. 92.92 is the next potential Fibonacci support.
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The decline from 108.35 is wave iii of 3 of larger III from 124.13. A drop below 95.72 would complete a third wave within the 5 wave drop from 108.35 and give way to a corrective 4th wave. Near term, a bearish bias is warranted as long as price is below 99.77.
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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 nearing a top. The Fibonacci reversal zone is 2.0033-2.0463; which Cable is in the middle of now.
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The rally from 1.9361 is wave C within the A-B-C advance from 1.9337. Wave C should divide into 5 waves and 5 waves can be counted from 1.9361. As such, a major top may be in place at 2.0396. Short term potential resistance is at 2.0222 (61.8% of 2.0396-1.9941).
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STRATEGY: Bearish, against 2.0396, target TBD
One possible count treats the drop from 1.1105 as wave 5 within a 5 wave drop from 1.3295. Under this count, the USDCHF should be within a few weeks of forming a major low.
We wrote last week that “it looks as though the USDCHF will continue lower. We do contend that the drop from 1.0352 is wave 5 within the 5 wave drop from 1.1105. Wave 5 could extend to the lower channel line near .9750/9800.” The USDCHF did continue lower, into .9650 yesterday. It still appears that one more low is required (below .9647) before a sizeable rally will develop.
The pattern in the USDCAD since the November low at .9055 is either an A-B-C rally that will lead to a new low (under .9055) or a 1-2 (expanded flat) base that will lead to a strong rally to new highs (suggesting that a multi-year USDCAD low is in place). The chart today shows the latter count. In the case of the latter, the drop from 1.0378 has satisfied minimum expectations by coming under .9755. We will be able to indentify a low from the wave structure on the hourly (once we see 5 waves up).
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As long as the declines are in 5 waves and the advances are in 3 waves, there is no reason to fade the downtrend. Price should come under .9710 soon. The bearish line in the sand is 1.0197.
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STRATEGY: Bearish, against 1.0197, target TBD
As is evident on the chart, the rally through the November 2007 high at .9400 satisfies minimum expectations for wave 5 from .8512. However, the advance does not look complete so expect the AUDUSD to push to a new high before the pair forms a significant top.
The 60 minute chart zooms in on the rally from .8512 (January low). The rally from .8512 is viewed as wave 5 of large C. So far, there are only 3 waves complete to .9496. The drop yesterday to .9127 probably completes wave 4 within the 5 wave advance from .8512.
STRATEGY: Bullish, against .9127, target TBD
[B]Since the top in July at .8108, we contend that the NZDUSD is tracing out a large expanded flat. Wave B of the flat could test .8504 (127% of A) or .8634/69 (100% extension of a within B and 138.2% of A). It is possible that a top is in place at .8215 though.[/B]
[B]An ending diagonal is either underway from the 1/22 low at .7494 or nearly complete. It is possible that this is the top of wave 5 and the entire rally from .6639. Under this scenario, larger wave C would begin now (and eventually come under .6639). [/B]
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[B]Tell us what you think about this report: contact the strategist about the article at <[email protected]>[/B]
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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] SENTIMENT ANALYSIS takes into account COT reports and analysis of news headlines. Studies done by Jamie Saettele (to be published in an upcoming book) indicate that the greatest number of headlines and the most negative headlines about a currency appear at bottoms and that the greatest number of headlines and the most positive headlines about a currency appear at tops.
[4] 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.