US Dollar Corrects Gains: Bullish Opportunities Await

  • Euro Near Term Bullish
  • Japanese Yen Trendline Remains Key
  • British Pound Breaks Through 2.0300
  • Swiss Franc Choppy Correction
  • Canadian Dollar Corrects Losses
  • Australian Dollar Resistance at .8750
  • New Zealand Dollar In Sharp 2nd Wave Higher

Commentary: We wrote yesterday that “very short term charts (15 min) show that the rally from 1.3608 would be in 5 waves on a push through 1.3679. Therefore, we are expecting EURUSD strength for the next day. Potential resistance is at the 38.2% of 1.3852-1.3608 at 1.3701 and the 61.8% at 1.3759.” Our near term view remains the same. That is, we are looking for weakness from 1.3627 to prove corrective and find support near 1.3658 before a stronger rally comes close to testing 1.3852. Price must remain above 1.3608 in order for this bullish scenario to play out.

Strategy: Look to get bullish close to 1.3658, against 1.3608, target 1.3852

Commentary: We continue to favor the downside in the medium term. Very short term, the USDJPY may test the 38.2% of 122.43-118.01 at 119.70. The 7/25 low at 119.81 defends this level. Keep an eye on the support line, drawn off of the May 2006 and March 2007 lows. A sustained break of this level would be a strong signal that the USDJPY is headed much lower, towards 117.60 and potentially 115.14.

Strategy: Sell bounce to 119.30/80, against 120.97, target 1 is 117.60

Commentary: There is no change to our outlook for Cable as things are playing out as expected so far. “The decline from 2.0561 has reached the 161.8% extension of 2.0654-2.0424/2.0561 at 2.0181, which makes it likely that the decline from 2.0654 will prove to be impulsive (5 waves) rather than a corrective 3 waves. The rally from the low is most likely a 4th wave correction. We are looking for this rally to end near the 38.2% of 2.0561-2.0181 at 2.0327.” The high on the day so far is 2.0335 so we are looking for the pair to roll over now and head below 2.0181. Price needs to remain below 2.0423 in order for us to remain near term bears.
Strategy: Move to flat, get bearish near 2.0327, against 2.0423, target 1 at 2.0181

Commentary: The USDCHF has by far been the most difficult pair to analyze over the past few months. This usually means that the pair is in a correction. The long term inverse head and shoulders (bullish) pattern that we have mentioned remains intact as long as price is above 1.1877. Near term, the decline from 1.2165 is in just 3 waves. This could be a B wave in a larger correction from 1.1960. If so, then price should continue higher towards the confluence of the 50% of 1.2468-1.1960 / 100% extension of 1.1960-1.2165/1.2005 at 1.2211/14. The 7/6 high is also at 1.2232. This is the clearest count that we see at the moment.
Strategy: Flat

Commentary: We wrote yesterday that “we are looking for a corrective setback in the USDCAD to unfold. The rally from 1.0340 is clearly impulsive, signaling that the trend has changed from down to up.” That corrective setback is unfolding now and should bottom in the 1.0477-1.0562 zone. This is the 61.8% to 38.2% of 1.0340-1.0699. The low of the former 4th wave is at 1.0523 and is in the middle of this zone.
Strategy: Bullish now, against 1.0340, target TBD

Commentary: We wrote yesterday that “we are treating the decline as the beginning of larger wave 4 in the 5 wave rally from .7268. Over the next seversal weeks, the AUDUSD could decline to the former 4th wave at .8162. However, since we are viewing this as a larger correction, trading is likely to prove choppy over the next several weeks (but chop lower). It is possible to count 5 waves down with an extended 3rd wave down from .8870 (which is likely wave A of the large correction), thus near term risk is to the upside towards .8545 and .8649.” The AUDUSD is testing .8600. A push through .8600 would give scope to a test of the 61.8% of .8870-.8458 at .8713. If a large flat is unfolding, then the AUDUSD will likely test the high at .8870. There will be an opportunity to get short for wave C of this correction, but the pattern is not clear enough to act upon yet.
Strategy: Flat

Commentary: We wrote yesterday that “a clear 5 waves down sets the stage for a longer term decline but immediate risk is to the upside towards .7684 and potentially .7873. We are expecting the rally to unfold correctively and will be looking for an opportunity to get bearish on the bounce.” So far, there is no evidence that the NZDUSD is ready to roll over so near term risk remains to the upside. Watch for a reversal in the Fibonacci zone of .7765-.7896.

Strategy: Flat
*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend. JTRENDLT is the longer term trend and uses the last 4 weeks of price data. JTRENDST is the shorter term trend and uses the last 5 days of price data. An example is below. Blue bars denote bullish trend and red bars denote bearish trend. The chart below is the EURUSD weekly chart.