daily technicals

EURUSD Pattern Indicates Potential For Sharp Reversal

Friday, 13 July 2007 11:16:18 GMT  |  Jamie Saettele, Technical Currency Strategist

• Euro Ending Diagonal?
• Japanese Yen Bearish (USDJPY Bullish) Above 120.97
• British Pound Upside Potential Limited
• Swiss Franc Corrects Gains (USDCHF Losses)
• Canadian Dollar 1.0442 Key for Bears (USDCAD Bulls)
• Australian Dollar Nearing .8700
• New Zealand Dollar Bullish Above .7714

Commentary:  1.3800 held yesterday but the EURUSD could test that level again today before bearish potential comes to the forefront.  We say this because the rally from 1.3731 may be tracing out an ending diagonal.  If this is the pattern playing out, then we should see a spike through 1.3798 before a reversal.  However, upside potential is limited compared to downside risk.  It seems likely that we’ll see a decline backl towards the former 4th wave at 1.3568 next week.  Coming under 1.3731 instills confidence in the near term bearish case. 
   
Strategy:  Sell break of 1.3731, against swing high (currently 1.3798), target 1 is 1.3568, additional bearish potential below there

 

Commentary:  We wrote yesterday that “the USDJPY bounce from 120.97 is still in 3 waves, but a rally through 122.52 would make the rally a 5 wave affair and strongly indicate that the entire decline from 124.13 was an a-b-c correction.  Keep in mind that the longer term structure suggests that an A-B-C correction could extend to 128.00 before the larger reversal.”  The USDJPY pushed through 122.52 to make the rally from 120.97 5 waves, which sets the tone for additional gains.  The decline so far has been corrective but additional support is at 121.83.  A break above 124.13 is now the favored view, but 120.97 must hold in order to keep the bullish structure intact.
 
Strategy: Bullish now, against 120.97, target a break above 124.13, target TBD 

Commentary: “There is no sign yet of a reversal but the long term structure indicates reversal potential.  Price has touched the resistance line from the ending diagonal.  A terminal thrust through the line is possible but strength should prove temporary.  We expect a reversal, and soon.”  The near term strucutre certainly allows for a new high (above 2.0365) as the decline from 2.0365 is in a corrective 3 waves.  That corrective 3 waves could also be just the first wave of a complex correction.  A short term bullish bias is warranted above 2.0261, but strength above 2.0365 will likely be marginal.  Coming under 2.0261 exposes former congestion at 2.0243.  Similar to the EURUSD, we could very well see a move back to the former 4th wave at 2.0056 next week.  However, until we see impulsive bearish price action, we will remain on the sidelines.

Strategy: Flat

Commentary:  As we have focused on, “look for a period of consolidation/correction to play out in 3 waves.  Our count on the daily has price declining below 1.1877 before any meaningful rally attempt takes place.  The USDCHF is bearish below 1.2232 although price is unlikely to come near here.”  The 3 wave correction is still unfolding and price is likely to push through 1.2068 before the next leg down begins.  Resistance is at the 38.2% of 1.2232-1.1992 at1.2084.

Strategy:  Remain bearish, against 1.2232, target TBD

Commentary:  The reversal that we have been expecting may be underway but we would like to see a clear 5 wave advance to signal the turn and instill confidence in the upside.  Coming under 1.0442 could see a test of the long term support line, near 1.0393.  We are showing the weekly chart with the wave count to illustrate why the USDCAD is close to putting in a significant low.
 
Strategy: Flat

Commentary:  There is no change in our outlook for the AUDUSD as the our count is tracking nicely.  “The AUDUSD continues to chop higher in the 5th wave (of a 5 wave rally  that began at .7415) of the 3rd wave ( of a 5 wave rally that began at .7268).  The pair may continue to extend towards where wave v (from .8162) would equal wave i of 3 (.7415-.7979) at .8726.  A wave 4 decline is eventually expected to bring price back to .8162 (or close to it) before larger wave 5 completes the advance from .7268.”    

Strategy: Flat

Commentary: We wrote yesterday that “a rally through .7838 would complete 5 waves from .7714 and set the stage for additional gains.”  Kiwi did rally through .7838 but a correction may be unfolding near term that brings price back towards .7790.  The pattern is not super clear but it is workable.  A cautious bullish bias is warranted close to .7790, against .7714.  We say cautious because the longer term structure indicates reversal potential (see previous daily techs for longer term analysis).  Also, the measured objective for the AUDUSD is just above .8700.  Given that the Aussie is close to this level and that Kiwi and Aussie are correlated, upside potential is likely limited.   
  
Strategy:  Flat

*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend.  JTRENDLT is the longer term trend and uses the last 4 weeks of price data.  JTRENDST is the shorter term trend and uses the last 5 days of price data.  An example is below.  Blue bars denote bullish trend and red bars denote bearish trend.  The chart below is the EURUSD weekly chart. 

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