Spending most of the week between 1.4660 and 1.48, the EURUSD is likely to break from the tight consolidation next week.
Despite the drop below the short term trendline that we showed yesterday, we still favor a rally into the 1.4980-1.5080 area by next week (and maybe higher in the weeks that follow). Price action from the 8/19 low at 1.4631 is corrective, unfolding as either a triangle or flat. We favor the flat. The rally from 1.4568 is wave C of the flat (if we are correct that this is a flat) or triangle. If a triangle then the EURUSD should still poke above 1.4811 before faltering ahead of 1.4908. In the case of the flat, the rally from 1.4568 is wave i of C (which could be an ending diagonal based on the sloppiness of the advance from 1.4568).
To repeat what we have cautioned recently, “the USDJPY simply has the ‘look’ of a top (head and shoulders). Only a break out of the 108-110.50 range is going to clarify directionality. It is worth mentioning though that 3 month volatility is at its lowest since the last late December. Low volatility historically indicates a high probability that a sharp drop is around the corner for the USDJPY.” A break below 108.12 looks imminent as rallies have failed at lower and lower levels for the last week.
The GBPUSD is setting up for a sharp reversal. While we may have said that multiple times over the last week, it remains true. We can not confirm that a low is in place since there is not a clear 5 wave advance at even the smallest degree of trend but the continued divergence with momentum only occurs at lows and it is possible to count the overlapping nature of the recent decline may be an ending diagonal as a small c wave. Still, the GBPUSD remains vulnerable to lower prices until we see 5 waves up and a push above 1.84. Just be aware that the ‘5’ we are expecting may begin soon.
A short term head and shoulders formation is visible on the USDCHF chart. The pair broke below a supporting trendline a few days ago and has tested the underside of that line as resistance. Coming under 1.0883 would confirm the head and shoulders. The next support would then be at 1.0740.
Bigger picture, we still expect a rally through 1.0726 in order to complete wave Y from .9974. However, more weakness in wave B of Y should occur prior to the bullish move based on the short term pattern. In other words, we would not chase strength here.
The AUDUSD pattern is the same as the EURUSD. That is, a triangle or flat is underway and the immediate term trend is up. We wrote last night that “we expect a test of .8688 by the end of the week.” If a flat is underway, then price ideally remains above .8533.
There is no change to the Kiwi analysis. “The NZDUSD rally from .6824 and decline from .7215 are either waves A and B of a flat or triangle. The short term direction is most likely up until at least .71 in wave C of a triangle. In the case of a flat, price would exceed .7215 before rolling over.” Price should remain above .6970.
Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week. He is also the author of Sentiment in the Forex Market.
Contact at jsaettele@dailyfx.com