US Dollar Gets a Breather as Market Consolidates

• Euro 1.3483 In Focus
• Japanese Yen Fibo Level
• British Pound Could Correct Lower
• Swiss Franc Reverses Intraday
• Canadian Dollar On a Tear
• Australian Dollar Digests Gains
• New Zealand Dollar .7300 Caps Gains?So Far


EURUSD – The short term bullish structure remains intact as long as price remains above yesterday’s low at 1.3406. Confidence that a top is in place would come on a decline below the short term trendline drawn off of the 3/26, 3/30, and 4/9 lows. That line is at about 1.3365 In fact, the rally from the 1.3254 has taken the form of an ending diagonal triangle (wedge). These patterns often mark the end of a larger move (from 1.2865 in this instance). The pattern often ends in a ‘throw over’ where the pair thrusts higher through the resisting line of the ending diagonal before reversing. Focus is on 1.3483 as long as 1.3406 remains intact.


USDJPY – The clear 5 wave rally from 116.37 sets the stage for more gains but the confluence of the 61.8% of 122.17-115.14 / monthly R1 at 119.48 may be difficult for bulls to overcome as the pair stalled there yesterday. If this level is cleared, then the bullish bias is that much stronger. The near term bullish structure is strong as long as the 4/10 low at 118.74 remains intact. Coming under this level indicates stronger bearish potential. In fact, the entire rally from 115.14 could be the end of a big A-B-C correction. If this is the case, then the USDJPY will start to decline from close to current price.


GBPUSD – The 5 wave advance from 1.9589 appears complete with the 1.9800 figure proving formidable as resistance. A period of consolidation / softness is expected before another impulsive rally unfolds. 1.9703 should be solid support. However, the triple top and shooting star on the weekly chart urges caution and suggests that a major top is forming. Coming under 1.9589 negates the near term bullish outlook (under 1.9671 would be the first indication that this rally will be fully retraced) and brings the ‘top forming’ scenario back to the forefront.


USDCHF – As long as price remains above the short term support line and the 4/5 low at 1.2122, scope remains for a break above 1.2281 in a 3rd wave rally. However, last night’s reversal prior to 1.2250 is disconcerting to bulls. A decline below 1.2122 negates the bullish implications from the 1.2122-1.2281 5 wave rally. Additionally, daily CCI has declined below 100, which is often the sign of a reversal. The monthly pivot zone is 1.2165/91. A daily close either side of this zone sets the directional bias.


USDCAD – The USDCAD continues to break down following the break of parallel channel support. The next potential support level is the 11/28/06 low of 1.1286. Daily RSI has reached oversold territory for the first time since April of 2006, so a bounce towards near term resistance at 1.1411 may be in order. The bearish case is strong below 1.1487.


AUDUSD – The AUDUSD has consolidated in what is either a distribution top or simply a brief pause in the uptrend. Daily oscillators (CCI and RSI) are overbought and divergent with recent highs. Also, the break that occurred at .8000 was from a triangle and triangle breakouts are terminal (meaning that they are eventually retraced). The daily chart below shows the triangle (a-b-c-d-e) and the 5 wave rally that has ensued and RSI. The Aussie has stalled at the monthly R1 (.8249) point and the next level of resistance is the 1990 high at .8351.


NZDUSD – The decline from the March 2005 high to the June 2006 low lasted 68 weeks. The rally from the June 2006 low has lasted 41 weeks (41st week ended on April 6th). The long term rally and decline is in Fibonacci proportion this week. Since this is the 42nd week (68/42 = 1.618), the odds of the NZDUSD putting in a significant top this week are high. Monthly R1 is a possible reversal point at .7327. Near term, it looks like the NZDUSD is tracing out an ending diagonal in a 5th wave from .7082 – these patterns lead to violent reversals. However, the decline from .7313 is corrective so far and does not instill much confidence in a reversal scenario. A decline below the support line from the ending diagonal, near .7220, is required before we can suggest that a top is in place.