USDJPY Breaks Out - Will it Extend?

• Euro Trendline 1.3350
• Japanese Yen Breaks Lower (USDJPY higher)
• British Pound 5 Waves Up
• Swiss Franc Tight Range
• Canadian Dollar Channel Resistance (USDCAD Support)
• Australian Dollar Breaks Through .8100
• New Zealand Dollar Takes .7200

EURUSD – The rally from 1.3256 to 1.3403 is overlapping and corrective in nature, which does not inspire much confidence in the bullish case. Coming under trendline support, near 1.3350, would be the first indication that the pair has turned lower from a significant top. We are looking for a significant top due to the 7 wave rally from the November 2005 low at 1.1640. 7 waves is really just two 3 wave structures linked together by an X wave. This is known as a double zigzag and is a countertrend movement. If 1.3413 is broken, then the bearish outlook is suspended and focus would shift to the 3/11/2005 high at 1.3483.

USDJPY – After turning down from triangle resistance last week, the USDJPY has blasted through 118.51 and invalidated the triangle. Focus is now on a continuation of strength towards the 61.8% of 122.20-115.15 at 119.51. There is also potential resistance from the 2/16 reaction low at 118.99. Former resistance at 118.00 is now support.

GBPUSD – We wrote last week that “we are looking higher in order for a 5th wave to complete a 5 wave bullish sequence that began at 1.9243. Wave 1 would equal wave 5 at 1.9798.” Cable rallied to 1.9826 today before turning lower. It is hard to say if this is the beginning of protracted weakness but a triple top is evident on the daily (December 2006, January and present highs). With a 5 wave advance from 1.9183, we are looking for at least a return to the previous 5th wave, near 1.9550.

USDCHF – The USDCHF continues to mark time between primarily 1.2100 and 1.2200. The short term subdivisions are not clear but the chart we showed a few days ago that depicts the entire decline from 1.2575 as a double zigzag correction remains valid. A break above potential trendline resistance drawn off of the 2/12 and 3/12 highs would increase confidence in the upside.

USDCAD – The USDCAD appears to be working higher now from channel support (and the 1.1500 figure). There are 5 waves down from 1.1828 but that may be the end of a correction (an A-B-C from 1.1879) rather than the beginning of an impulsive move. The way in which this rally attempt unfolds will give us a better idea of what to expect. Given the 5 wave decline from 1.1828, a return to 1.1640 seems likely.

AUDUSD – We still maintain that the AUDUSD is nearing the latter stages of a long term rally. Daily RSI has crossed above and then below 70 (overbought) for the first time since November 2006. The rally from .7680 is in 5 waves and could be the end of the 5th wave in the 5 wave bullish sequence that began in April 2001 (see chart below). If this is the case, then we are near a major top and the next big move is towards .7000. There is no evidence yet that a top is in place – we’ll require a 5 wave decline (even at the smallest degree) in order to claim that a top is in place. However, the likelihood that we are very close to a top is high as there are now 5 waves higher from .7680. The next resistance would be the December 1996 high at .8215. .8030/40 is initial support.

NZDUSD – Kiwi is in the same position as the AUDUSD. The rally from .6720 is now in 5 waves and thus the form is complete so a top and reversal should soon follow. However, there is always the risk that the 5th wave extends. Still, daily oscillators are divergent with the recent high so we believe that the reversal scenario is a valid one. .7081 is initial support.