USD Slips but Holds Recent Low - Setting Up Potentially Bullish USD Move

[B]- Euro Stalls at 61.8%

  • Japanese Yen Support Line at 121.00 (USDJPY Resistance)
  • British Pound Rolling Over
  • Swiss Franc Remains Bearish (USDCHF Bullish)
  • Canadian Dollar Makes New High but Snaps Back
  • Australian Dollar C Wave Down
  • New Zealand Dollar Held in Check by 20 day SMA[/B]

EURUSD - The EURUSD broke through the short term resistance line and closed above the 20 day SMA yesterday. Support should be strong at the 5/14 high of 1.3558 but coming under here would be a sign that the bigger turn lower is underway. We continue to look for the bigger turn due to the sentiment extreme (as evidenced by COT). The rally from 1.3462 has stalled at the 61.8% of 1.3680-1.3462 at 1.3597 (the high is at 1.3609) and hourly RSI has rolled over from above 70, suggesting that we will see at least a pullback. The long candle on the 240 minute chart (see below) also warns of additional bearish price action.

USDJPY - The USDJPY continues to hold above the 10 and 20 day SMAs but the entire rally from 115.14 is suspect. The rally is overlapping and thus corrective. The pair could chop higher towards trendline resistance near 121.00. Yesterday?s high is just below the 78.6% of 122.17-115.14 at 120.67, which is another potential reversal point. The next big move is most likely a C wave decline below 115.14. A break of the support line drawn off of the 3/5, 3/28, and 4/19 lows would signal that the C wave is underway.

GBPUSD - Short term direction remains unclear, especially given the rally through 1.9826. Daily studies remain bearish though as RSI is below 50 and price is below both the 10 and 20 day SMAs. The 10 day has served as resistance today at 1.9863. A candle similar to that of the EURUSD is visible on the 240 minute chart (long upper wick). Coming under 1.9746 gives scope to a test of the 1.9545/89 area (former reaction low). Potential resistance lines are from 1.9930 to 2.0000.

USDCHF - “The longer term wave structure is bullish as the decline from 1.2571 is a double zigzag (inverse of the EURUSD rally). A longer term inverse head and shoulders pattern (May 2006, December 2006, April 2007) is also visible.” We have been waiting for a daily close above the resistance line drawn off of the 2/12 and 4/9 highs, which held last week, before getting aggressively bullish. The USDCHF closed above the line last week, thus we are bullish against 1.1993. Ultimately, we expect this rally to span weeks and target 1.2571. The near term bullish case is strong above the short term trendline, which is near 1.2160.

USDCAD - We wrote yesterday that “the decline from 1.1168 is either a B wave in an A-B-C correction that will end above 1.1168 or the 5th wave of the decline from 1.1825. Either way, downside potential is limited. In the former scenario, the rally begins from before 1.1005. In the latter scenario, the pair will make a slight new low before reversing higher and tracing out a correction (which would be a 4th wave) of the decline from 1.1825.” The ‘latter? scenario is the one that occurred and there may be a intermediate term bottom in at 1.0965.

AUDUSD - With the AUDUSD failing (so far) at the 78.6% of .8390-.8168 and with the rally from .8168 failing to appear impulsive, it is possible that a larger correction is playing out. As long as price remains below .8349, our favored view is that a C wave decline is underway towards the 100% extension of .8390-.8168/.8349 at .8127.

NZDUSD - With Kiwi unable to push through the 20 day SMA the last 3 days, it seems wise to adopt a neutral / cautious bearish stance against .7403 (a psychological figure as well at .7400). Keep risk tight on a decline below .7345 as that could mark the end of an A-B-C correction and lead to another leg higher.