Sentiment measures and chart patterns indicate that the USD is nearing a significant bottom. The commodity currencies look poised to fall the most in a USD recovery.
While the specific count eludes us, it is worth noting that the rally from the 2005 low at 1.1640 is now in 15 waves (derivative of a correction). The latest breakout is from a triangle, which is a terminal pattern. Expectations are for a top and reversal in the next few weeks that gives way to a corrective decline that could last over a month or more.
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We wrote Friday that “even if wave 4 is still forming, higher prices are a high probability next week as wave 5 is required to complete the entire bull cycle from 1.4438. Objectives lie above 1.5400; there are 261.8% extensions at 1.5429 and 1.5447. We will look for a top and reversal near there.” Our count favors the idea that wave 5 within the 5 wave rally from 1.4438 is underway now. Wave 5 would equal wave 1 at 1.5391, not far from the mentioned objectives of 1.5429 and 1.5447.
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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. . There is plenty of room for the USDJPY to fall over the next few weeks and months. In fact, the pair is entering the most bearish part of its pattern since 124.13. As such, we are on the lookout for shorts. There are Fibonacci extensions (161.8) at 97.64 and 98.06.
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Near term, the USDJPY is plunging. A drop below 102.62 could complete 5 waves down from 108.22. If this happens, then it is possible that we could get an opportunity to sell into a corrective rally that challenges former congestion in the 103.80/104.40 zone.
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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 underway now is either wave 2 or B and is nearing a top. We will look to identify a top in the 2.0033-2.0463 zone.
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Cable still has a few hundred pips of upside potential. A triangle has formed since the 1.9970 high and is viewed as wave 4 within the 5 wave advance from 1.9361 (which itself is a C wave). As such, a terminal thrust above 1.9970 probably occurs this week. Resistance begins at 2.0033. Risk on longs can be moved to 1.9807
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STRATEGY: Bullish, against 1.9807, target 2.0119
The drop from 1.1591 is viewed as wave 5 within the 5 wave drop from 1.2569. Within this 5th wave, the USDCHF is currently in wave iii of 5, which should come under at least 1.0239 (where wave iii of 5 would equal wave i of 5). The 161.8% extension would be the next potential support at .9704.
A drop below 1.0307 would complete 5 waves down from 1.1033. This completes wave 3 within the 5 wave bear cycle from 1.1105. A shallow 4th wave correction is then expected. Resistance should be strong near 1.0420.
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). 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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The rally from .9710 could be counted as an impulse. As such, a bullish bias is warranted against .9710. Potential support begins at .9826. The next leg of the rally will be either wave 3 or C within the cycle from .9055. The rally will probably be strong. The goal for this week is to position for a big move higher.
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</p> The AUDUSD is in its final stages of an A-B-C rally that began in 2001. We will look to identify the top on the short term charts.
</p> It is tempting to attempt a bearish play against .9496 since the decline from there is in 5 waves. However, that decline could be wave C of an expanded flat from .9457 that completed wave 4 within the 5 wave advance from .8512. Under this count, price will exceed .9496, if only slightly, before forming THE top.
[B]In the daily, it is likely that the NZDUSD has formed a double top in the form of an expanded flat with the July 2007 high at.8108. Expectations are for the NZDUSD to begin accelerating lower in the next few weeks. The objective is below .6639. [/B]
[B]The drop from .8214 has yet to complete 5 waves. Until that occurs, we will refrain from taking a bearish stance. If price does drop below .7922 in the next few days, then we’ll look to sell the 3 wave bounce that follows.[/B]
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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.