Weekly Forex Technicals | Written by DailyFX | Jun 09 08 14:04 GMT |
The USD will likely head to yearly lows against a number of currencies (except for the CAD) in the coming weeks and months. After the large moves last week, it is best to lighten up on USD shorts though as some corrective action is expected to open the week.
EURUSD
We maintain that the EURUSD is headed to a new high in order to complete large wave III within the 5 wave advance from 1.1640. A correction in wave IV will then take place back to the low 1.40s. Potential bullish targets are 1.6229 and 1.6763.
The minimum objective of 1.5817 has been reaches but there is no evidence to suggest that the EURUSD rally is complete yet. As such, we maintain a bullish bias. The preferred count treats the rally from 1.5364 as a third wave within the 5 wave advance from 1.5283. Under this count, targets are not until above 1.6018. The alternate treats the rally from 1.5364 as a C wave in either a flat or a triangle (in a triangle, the rally from 1.5364 is wave c of B); which probably ends no sooner than 1.59 (equality with wave A). In summary, remain bullish. Risk can be moved to 1.5572.
STRATEGY: Bullish, against 1.5572, target 1 at 1.5890, target 2 above 1.6018
USDJPY
The USDJPY count that treats the rally from 95.72 as a 4th wave is valid as long as 107.20 remains intact. The structure of the rally from 95.72 supports our bearish argument.
We expect a top to form in the USDJPY before 107.20. A push through 106.42 would face potential resistance from the 2/28 high; at 106.63. There is the possibility that a top is in place at 106.42 though. The decline since then may be a series of 1st and 2nd waves. Under this count, a third of a third wave decline would commence soon. From this perspective, reward/risk is heavily skewed in favor of bears.
GBPUSD
Bigger picture, a 5 wave advance from 1.7047 is complete at 2.1160. Therefore, a large 3 wave correction is underway from 2.1160. The first leg of that correction (A) is complete at 1.9337. We previously favored the idea that the B wave top was in place at 2.0397 but the way in which the decline has unfolded from there gives more weight to the alternate count; that treats wave B as a complex correction that will not end until above 2.0397. We wrote last week that “the rally should be strong. Most final legs of corrections are strong moves and serve to convince the majority of market participants that the previous trend (in this case, up) is back underway.” The expected rally is happening now.
It is possible that there 5 waves up from 1.9536 are close to complete. However, experience tells us to also respect the possibility that the advance will extend without a meaningful correction. As mentioned in the daily chart analysis (above), the final legs of corrections are often very strong, nearly vertical moves. Since the final target is not until above 2.04, we are remaining bullish although it is a good idea to lighten up on longs.
STRATEGY: Bullish, against 1.9461, target 1 is now and target 2 is above 2.04
USDCHF
We have re-labeled the USDCHF. The advance from .9647 unfolded in a corrective manner, therefore the rally was labeled as wave 4 within the 5 wave drop from 1.3285. A new low is expected (below .9647) in the coming months.
The USDCHF is falling as expected. “There is little doubt that the advance from .9647 is corrective because a triangle separates the two legs. The only question is whether or not the rally from .9647 is a complete 3 wave rally or just the first wave of a larger more complex correction. Regardless, a bearish bias is warranted against 1.0527.” The story is the same as with the EURUSD and GBPUSD. It is a good idea to lighten up on position size at this juncture since it is possible that a larger correction is underway and the drop below 1.0214 satisfies minimum expectations for the second leg of the correction.
STRATEGY: Bearish, against 1.0408, target 1 is now and target 2 is below .9647
USDCAD
The decline from the 2002 high at 1.6189 may be complete as a long term double zigzag corrective decline. If this count is correct, then a multi-year low is in place for the USDCAD.
The minimum objective that we have cited for some time is above 1.0324. However, the alternate (in red) commands a good deal of respect in this case given the USD bearish bias in the other pairs (alternate here is a triangle). This is why we mentioned the last few days to “think about taking some longs off of the table near 1.02.” There is no change to this strategy. In the case of the triangle, the rally from .9818 would be wave D of the triangle (to be followed by wave E lower and then a bullish breakout).
STRATEGY: Bullish, against .9967, target above 1.0324 (but lighten up on longs ahead of 1.0324 resistance)
AUDUSD
Longer term, the AUDUSD is in the process of forming a major multi year top. We view the advance from the 2001 low as an A-B-C advance. The rally from the 2004 low at .6771 is wave C. Short term charts indicate additional upside potential but we’ll attempt to identify the top as the pattern unfolds.
The AUDUSD continues to respect the supporting trendline and as a result, we remain bullish. The advance from .8952 is likely the final leg of a diagonal that will lead to the major top mentioned in the longer term chart. “The rally from .8952 is wave C of a large 5th wave diagonal that could extend to a measured objective just below 1.00 in coming weeks (.9936).” A bullish bias is warranted against .9290 although price ideally remains above .9486.
STRATEGY: Bullish, against .9486, target .9936
NZDUSD
The break of a support line drawn off of the 8/17/07 and 1/22/08 lows suggests that the wave C decline has started. The long term count calls for this C wave to eventually end below .5927. A word of caution however; the short term charts are in conflict here. Confidence in this count is low right now.
From a price structure point of view, the decline since the March top at .8215 has been choppy and corrective. The drop counts well as a double flat (this is a complex correction). Moreover, the legs of the decline are roughly equal (a common characteristic among corrections). The leg up from .7536 is the closest thing to an impulse that the NZDUSD has shown since the March top. As such, a bullish bias is warranted against .7536 and the target is above .8215. Yesterday’s plummet may be wave C within the A-B-C decline from .7921.
STRATEGY: Bullish, against .7536, target above .8215
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