New Zealand Dollar Short Head and Shoulders Pattern

Tue, 31 Mar 2009 10:13:11 -0400

By Jamie Saettele, Senior Currency Strategist

New Zealand Dollar Short Head and Shoulders Pattern

-EURUSD resistance at 1.34
-AUDUSD top not yet confirmed
-NZDUSD short term head and shoulders top
-USDJPY continues to threaten resistance
-USDCHF support at 1.1350


Euro/ US Dollar

My working assumption is that a wave 2 high is in place at 1.3740 (within what will be a 5 wave decline from 1.4723). Ultimately, the EURUSD is in a long term bear that likely lasts for a few years. That is not to say that there will not be rallies along the way. I wrote yesterday that “near term, 5 waves may be nearing completion from 1.3640. Look to sell rallies… the breakdown level at 1.3416 is resistance.” A corrective rally from yesterday’s low is expected to reach completion within the next day. As mentioned, former support at 1.3416 is now resistance. 

British Pound/ US Dollar

Price action since 1.35 is a 4th wave that will end as either a triangle or flat. I wrote last week that “since it looks as though the EURUSD long term decline has resumed, a triangle (see arrows) is more likely. IF a triangle is underway, then wave D is working lower towards 1.40 now.” Cable is following the triangle path…we’ll look for it to play out. It is unlikely that I’ll advocate trades in the GBPUSD for a number of weeks since the pair is in a correction. 

Australian Dollar/ US Dollar

“Price action in the AUDUSD since the October 2008 low has carved out what could be a head and shoulders continuation pattern. This is pure speculation at this point but the ‘look’ is there. For the last 3 days, the pair has been testing the left shoulder level. Staying below .7050 keeps the short term trend pointed lower.” The AUDUSD drop has accelerated. Once I see 5 waves down from .7093, a top in AUDUSD will be confirmed.

New Zealand/ US Dollar

I wrote last week that “there is a count in the NZDUSD that calls for a wave 2 high to form before .6090. If this is to occur, then a high should form within the next few days. Short term structure favors a push above .5753 in order to complete wave c of an expanded flat.” Kiwi is 200 pips off of the high and price has broken below a short term support line. Bears can move risk to .58 (last week’s high) and short term resistance is at .5670-.5715. Bolstering the bearish case is the short term head and shoulders formation.

US Dollar/ Japanese Yen

The longer term USDJPY decline may have resumed. The advance from 87.09 is in 3 waves and price has dropped below the wave A high at 94.67, confirming that the decline is in 3 waves (and can not become an impulse). Favor the downside as long as price is below 99. Above there and the USDJPY likely tests the 200 day SMA just below 100.

US Dollar / Canadian Dollar

Since the USDCAD did exceed its wave 3 terminus on March 9, it is possible that wave 5 within a 5 wave advance from the 2007 low is complete. Near term, a push above 1.2653 would possibly complete 5 waves up from 1.2197. A pullback would then offer an opportunity to get long against that level. 

US Dollar / Swiss Franc

Like the EURUSD, the USDCHF may have resumed its longer term trend towards USD strength. Near term, bulls are in control as long as price is above 1.2222. Price is nearing former resistance at 1.1350, which should now hold as support.

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.

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