The technical picture continues to deteriorate for the dollar's competitors. Waning momentum at recent price extremes is just one sign that a turn is near. Resistance from measured levels and resistance lines as well as wave count implications all require that we respect the potential for a reversal.
Euro / US Dollar
I wrote yesterday that the EURUSD has exceeded the December 2008 high and is approaching 1.4850 (a 100% extension), which is a potential target. The line extended from the March and June highs is also a potential target; that line is at 1.5160 this week and increases about 60 pips a week. RSI is above 70 on the daily, divergent with the December high (RSI reached 79 then) and former trendline support turned resistance is near current price. The risk of a bearish reversal is high but until there are signs of such (candle pattern or short term wave pattern for instance), it is dangerous to be short. Today, I've zoomed in to view short term structure. The recent break was from a triangle and triangles preceded terminal moves. The rally from 1.4500 appears to be unfolding as a diagonal and may be complete. Even so, one more high would probably complete the rally. Watch 1.4850.
British Pound / US Dollar
Head and shoulders patterns have been our focus of late. On the daily, a potential head and shoulders top is evident (although the pattern can not be confirmed until price breaks below the neckline - which is near 1.6200). Bolstering the bearish bias is the shorter term head and shoulders top (which comprises what may be the larger right shoulder), which is confirmed. Bears are favored against 1.6665. Risk can be moved to 1.6575 and 1.6400 now serves as probable resistance (this level is former support). It is important to note that the minimum objective of 1.6300, which is derived from head and shoulders measurement technique, has been reached. Still, it is ok to short on pullbacks to 1.6400/trendline resistance in anticipation of the break below the larger pattern neckline.
Australian Dollar / US Dollar
The AUDUSD continues to work higher towards the 78.6% of the decline from .9856-.6007, which is .9032. This level intersects with a potential resistance line on September 24. It is possible that the rally from .7700 is an ending diagonal and that wave iv of that diagonal is underway towards .8476.
New Zealand Dollar / US Dollar
Kiwi is top heavy. Divergence with DDiff (derived from DMI) warns of a reversal as does failure at a resistance line. .6900 is potential support. A push to a new high would expose .7250. This is where the rally from .6193 would be equal to 61.8% of the .4890-.6601 rally. The level also rests in between 2 prominent former pivots (.7222 and .7384).
US Dollar / Japanese Yen
Keep the long term outlook in perspective - a 4th triangle ended in 2007 above 124.00 therefore the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80). The USDJPY is trendline resistance. If broken, then focus shifts to former support at 93.08.
US Dollar / Canadian Dollar
Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 - which has been both support and resistance over the last several years. This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730). Thus far, the 61.8% retracement of the rally from .9055 has held. The circled area could be a triangle, in which event the immediate move is higher towards 1.1100.
US Dollar / Swiss Franc
The print below 1.0367 (December 2008 low) satisfies the minimum requirement for wave v of C. Divergence with momentum on nearly all time frames warns of a sharp turn against the Franc.
Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses on Monday (Euro and Yen crosses), and intraday trading strategy as market action dictates. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary at DailyFX Forex Stream.
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