Dollar strength towards the end of the week may mark the beginning of a reversal pattern. The best looking trade though is long USDJPY, as the pair has broken through a short term head and shoulders pattern. The development fits with a longer term wave count.
EURO / US DOLLAR
Joel: The structure remains quite constructive on the monthly chart, with the market having put in 6 consecutive monthly higher lows and potentially now looking for a seventh. The price has also traded above the 61.8% fib retracement off of the major 2008-2009 high-lows, and next key resistance after 1.5000 is not seen until 1.5240, the 78.6% fib retracement off of said move. For now, 1.4175 is critical longer-term support and needs to be broken to end a sequence of consecutive monthly lows and put the pressure back on the downside. Until then, buying dips should be the preferred long-term strategy.
Jamie: Focus remains on the top of the channel from early July (5th wave channel, more on that below), which is at 1.5034 Monday. The channeling nature of the EURUSD since July suggests that the push above 1.4847 is likely wave of 5 of v of C. Wave count and momentum readings suggest a top, but not until a drop below 1.4820 would it be wise to attempt a short.
BRITISH POUND / US DOLLAR
Joel: Difficult to determine whether we are in the process of attempting to carve a major lower top in the 1.7000 area ahead of the next drop below 1.3500 or are looking for a higher low ahead of a fresh upside extension beyond 1.7000 and back towards the 2 handle. For now however, at a minimum, it looks as though the market wants to trade lower with sights set on the 1.5000 area over the coming weeks. This, after the triggered major h&s top by 1.6000 on the weekly chart. As such, any rallies towards 1.6500 should be aggressively sold into.
Jamie: The GBPUSD has returned to and exceeded the head and shoulders neckline that was broken in September. Resistance extends to a line extended from the August and September highs, which is at 1.6456 Monday. The next move will be to position short against 1.6746.
AUSTRALIAN DOLLAR / US DOLLAR
Joel: The market has now exceeded the critical psychological barrier at 0.9000 to trade well into the 0.9200’s thus far. However, at this point, daily and weekly studies are showing overbought to suggest that the current trend will be unable to sustain itself. As such, we recommend looking for opportunities to fade the latest surge, with a break back under 0.9000 to confirm topping prospects.
Jamie: The AUDUSD has exceeded .9200 and I’ve mentioned in recent days/weeks that levels to watch are .9200, .9270, and .9325 (these are former support levels from 2008). These levels make a large zone where a reversal could occur. RSI (14 day) is above 74 but not as high as it was at the June high, when it was above 75 (divergence still exists). Price action carved out an outside day Friday, which is a reversal warning.
NEW ZEALAND / US DOLLAR
Joel: The intense rally has finally reached critical psychological barriers by 0.7500, which also coincides with the major 78.6% fib retracement off of the 2008 high-lows. With daily and weekly studies severely overbought, looking to sell at current levels is the recommended strategy. However, we would wait for some form of confirmation to establish any short position. There is some solid support by 0.7250 and a break of this level will confirm our outlook.
Jamie: The NZDUSD continues to look heavy, especially on hourly charts. Dropping under .7250 would break the series of higher lows and indicate that a top is in place. Like the AUDUSD, Friday’s price action made an outside day (which warns of a reversal).
US DOLLAR / JAPANESE YEN
Joel: Remains locked in a very well defined downtrend from 2007 with the market putting in a series of lower highs and lower lows. A fresh lower top is now sought out by the 2009 yearly high at 101.45, to be confirmed on a break below the matched 2008/2009 trend lows at 87.15. Any rallies are classed as corrective and although the market is currently in the process of bouncing out from the recent lows by 88.00, we look for gains to be well capped ahead of 95.00. No trading is recommended at current levels.
Jamie: I presented this longer term bullish count earlier in the week. Either a triangle or complex correction is underway since December 2008. The next leg should be up towards 101.50 (maybe even above). The break above 90.43 confirms a short term inverse head and shoulders reversal and sights are on a Fibonacci extension at 92.80.
US DOLLAR / CANADIAN DOLLAR
Joel: Although the market has undergone some steep setbacks since the onset of 2009, we contend that the longer-term structure is constructive from here. Although we had not anticipated a dip below the 1.0500 area, the latest setback into 1.0200 seem to have found a bottom which could now signal the start to a major upside push over the coming weeks. Thursday’s strong bullish outside day could very well prove to be the catalyst.
Jamie: “1.0317, which is the 61.8% extension of 1.3068-1.0782/1.1730, has been reached. 1.0375/1.0400 is short term resistance and a rally above 1.0527 would begin to suggest that a bottom is forming. Additional objectives are .9914 and .9444.” After dipping below 1.0300 (which has been a significant pivot since 2008), the USDCAD has rallied. It is possible that an important low is in place. Exceeding 1.0527 would warrant a strategy of buying dips.
US DOLLAR / SWISS FRANC
Joel: Has extended declines in 2009 to fresh lows by 1.0115 thus far ahead of the latest minor bounce. Despite the downtrend, we contend that the market is very close to carving out a higher low above the multi-year lows below parity, ahead of some fresh upside back above 1.1000 over the medium to longer-term. Although the 78.6% fib retrace off of the major 2008-2009 move has been slightly breached, the 1.0100 area could be an ideal spot for the higher low to take form. Ultimately, inability to hold above 1.0000 on a weekly close basis will however negate recovery prospects.
Jamie: The USDCHF has dropped to a new low and is probably completing wave v of C (just as EURUSD is in the process of doing). 1.0037, the 100% extension of 1.2303-1.0367, is a potential reversal point. Trading above 1.0362 would suggest that a low is in place.
Written by Jamie Saettele
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