US Dollar Plunges to 25 Month Low

• Euro Breaks 1.3500
• Japanese Yen Wave C Down?
• British Pound Closing in On 2007 High
• Swiss Franc Rallies Through 1.2100
• Canadian Dollar Challenging 5 Month Highs
• Australian Dollar Takes Out .8300
• New Zealand Dollar Tests May 2005 High

EURUSD – The EURUSD has taken out resistance from the March 2005 high as well as the 1.3500 figure. The next level of chart resistance is the 2004 high at 1.3666. There is no change in the call for a top due to the 7 wave rally (which is a double zigzag?.two zigzags connected with an X wave – labeled W-X-Y) from 1.1638. A break of 1.3666 would expose 1.3799, which is where wave W (1.1638-1.2979) would equal wave Y (beginning at 1.2458). Near term, the pair has run into resistance from a 2 month upward sloping channel line and RSI is overbought on every time frame from daily on down to 5 minutes. It looks like some consolidation / correction in a 4th wave will unfold above 1.3453 before a 5th wave rally.

USDJPY – We mentioned yesterday that “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.” The pair did roll over and is currently testing the 20 day SMA at 118.28. A close below bolsters the bearish outlook and potential for a C wave decline to eventually come under 115.14. The pattern developing is taking the form of a head and shoulders top.

GBPUSD – Cable has rallied through the 4/3 high at 1.9822 and focus is now on the 2007 high at 1.9914 (1/23 high) and then psychological 2.0000 figure. The break of 1.9822 suggests that Cable is in a 3rd wave that will break above 1.9914. The structure is bullish as long as price remains above 1.9722 but support should be strong at 1.9815.

USDCHF – Having broken short term trendline support, the USDCHF appears to be in a 3rd wave lower. A measured objective for the end of this 3rd wave is the 161.8% extension of 1.2281-1.2142 / 1.2243 at 1.2018. Potential support there is reinforced by the 3/16 low at 1.2027. Remaining below 1.2142 keeps the bearish structure intact and focus on 1.2018/27.

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 continues to rally and is close to the 1990 high of .8351. 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. With daily oscillator action, an extreme risk reversal rate (1 month 25 delta options) and the Aussie probing 1990 highs, we are looking for a reversal.

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. 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. A decline below the former resisting line of the diagonal triangle is at 73.10 and a decline below there would bolster a reversal case but the decline will have to show impulsive characteristics as well.