FX markets are flat in thin holiday trading. Still, there are warning signs that a turn towards USD strength may be around the corner.

Euro / US Dollar

The EURUSD rally is stretched and due for at least a pullback and maybe, just maybe, a reversal. Wave structure favors a reversal sooner rather than later. The fractal nature of freely traded markets is on full display. That is, the form of the declines from 1.6000 and 1.4723 and their subsequent rallies are the same. The rally from 1.2886 is in 5 waves and wave 5 slightly exceeded the 1-3 line Friday. Overbought and divergent RSI on multiple time frames also warns of a turn.

British Pound / US Dollar

There is no change to the bigger picture pattern in which wave 4 within the 5 wave decline from the 2007 high is nearing completion. Cable has tested a former 4th wave extreme at 1.5730... and exceeded it. Strength has been contained by the top of a parallel channel thus far. The rally from 1.3500 is taking the structure of a complex (w-x-y) correction. Similar to the EURUSD, I am expecting a reversal.

Australian Dollar / US Dollar

Nothing has changed regarding the long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much). Near term, RSI divergence along with a mature wave structure at multiple degrees of trend (3 waves up from .6000, 5 waves up from .6245 and 5 waves up from .6950) suggests that a turn is imminent.

New Zealand Dollar / US Dollar

The NZDUSD has soared to a new high. The rally from .5484 is in 5 waves therefore the risk of at least a pullback, potentially to .5829, is high. The advance from below .5000 is most likely an A-B-C (zigzag) and wave C would equal wave A at .6581.

US Dollar / Japanese Yen

The USDJPY is approaching 93.50...a break below there would clear the lowest point of the head and shoulders top that had formed since March. The triangle count that I have presented in recent days is still valid but becoming less probable by the day. At this point, remaining below 96.71 keeps the near term trend pointed down.

US Dollar / Canadian Dollar

RSI divergence at the low along with potential support from a line extended from the 4/16 and 5/8 lows indicates reversal potential. Structurally, the decline from 1.3068 is in 7 waves. This decline could be counted in several ways, but the near term implications are bullish for nearly all counts. The decline could an A-B-C correction that is nearing completion, a double 3 (two flats), or waves 1 through 3 of an impulse. At least a rally back to 1.1820 is expected. Above 1.1357 indicates a reversal.

US Dollar / Swiss Franc

The USDCHF has dropped below its March low of 1.1157. In other words, minimum expectations have been met for wave Y. The risk of a bottom and reversal is high.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.

Please send comments about this report to jsaettele@dailyfx.com