Top Currency Trading Ideas for the Week of July 14, 2008

Weekly Forex Technicals | Written by DailyFX | Jul 14 08 13:18 GMT |

Our USD bearish stance has been proved correct to this point and we think there is a good deal of weakness going forward. The EURUSD is still the best option as the first bullish objective is not until 1.6324. A USDJPY collapse is possible as the pair is quietly making lower highs on short term charts. EURUSD We maintain that the EURUSD is headed to a new high in order to complete wave V within the 5 wave advance from 1.1640. A correction in wave IV is complete as a triangle at1.5468. Price should remain above 1.5612. Objectives are in the mid 1.60’s and near 1.70. When this advance is complete later in 2008, a multi-year decline is expected to begin. The wave V advance is unfolding from 1.5468 and waves 1 and 2 of 5 are complete. The wave 2 of V low is at 1.5611 and price shouldn’t even come close to there. If traded to, then 1.58 should provide support. This is the 61.8% of the most recent 5 wave rally and former congestion. 1.58 is a level where bulls can add to longs (or initiate if late to the game). Expect the rally to accelerate and ‘go parabolic’ soon. STRATEGY: Bullish, against 1.5611, target TBD USDJPY One count treats the drop from 124.13-95.72 as a W-X-Y decline (7 waves, which is corrective). However, it is not clear where this fits in the larger pattern (take a look at the monthly, and it is quite clear that the USDJPY has broken from a 4th wave bearish triangle). The other count is that the decline from 124.13 is a leading diagonal. Under this count (and given near term weakness), the entire advance from 95.72 could be a completed wave 2. If so, then wave 3 down is in its early stages. The USDJPY decline from 108.57 could be the beginning of larger wave 3 since the advance from 95.72 is in 3 waves. If the count above is correct, then wave C is nearly 61.8% of wave A, a common relationship. A clean break of the support line shown above would inspire confidence in the bearish case. A short bias is warranted against 107.75 STRATEGY: Bearish, against 107.75, target TBD 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. The expected rally is underway now. There are a few possibilities right now for the GBPUSD. A triangle could be nearing completion. Triangles unfold in 5 waves (A-B-C-D-E) and wave E could terminate following a push through 2.0006. The other triangle count treats the advance from 1.9364 as wave C of the triangle; which would probably end near 2.02. The most probable count in our estimation though is that wave C of a flat is underway and will exceed 2.04. This fits with the larger USD bearish count. In summary, odds are high that the GBPUSD continues higher from current price. STRATEGY: Bullish, against 1.9648, target 1 at 2.0175, target 2 TBD 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 (just as a new high is expected in the EURUSD). The USDCHF is probably on its way to a new low. The advance from .9647 is in 3 waves and therefore corrective. The drop from 1.0624 may be a series of 1st and 2nd waves. The pattern is not especially clear though, and we would rather pursue opportunities elsewhere. If the bearish bias is correct, then the USDCHF should remain below 1.0540 but a push through 1.0352 is possible. USDCAD Regardless of the larger pattern, the advance from .9055 is unfolding as a large correction. However, wave C (often the strongest leg of a correction) has yet to commence. A triangle is nearing completion as wave B within an A-B-C pattern (which may be wave A of the next larger degree). Wave C should surge through 1.0378 in the next few weeks. This is a close up view of wave E. There is the possibility that the wave E decline is complete at 1.0047. 5 waves up from 1.0047 has hade us bullish against that level since the beginning of the month. If the count above is correct, then the USDCAD needs to surge higher soon. STRATEGY: Bullish, against 1.0047, target above 1.0378 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. We wrote on Thursday that a wave 2 correction is probably complete at .9475 and that a bullish bias was warranted against there. The expected advance is underway and objectives are not until .9815 and just above 1.00. Look for support near .9640 and .9595 (former support levels). Drops to these areas would present opportunities to add to positions. STRATEGY: Bullish, against .9475, target TBD 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. Bigger picture, the NZDUSD is expected to advance to the 50% of .7921-.7445 at .7683 and perhaps even the 61.8%-78.6% at .7740-.7920. A rally to there would fill the 6/4 gap. The up-down sequence from .7445 is probably waves A and B. Wave C is considered underway as long as price is above .7483; bullish bias is warranted against there. STRATEGY: Bullish, against .7445, target .7720 DailyFX