Mature wave structures and momentum divergence at recent highs in the EURUSD, AUDUSD, and NZDUSD favors additional US dollar strength. The GBPUSD is contained by channel resistance. The USDJPY trend is bearish below 96.70.

The EURUSD rally from 1.2886 is in 5 waves. Wave 5 slightly exceeded the 1-3 line Friday and price has pulled back as expected. Weakness is expected to extend to at least 1.3420 over the next several weeks.

There is no change to the bigger picture pattern in which wave 4 within the 5 wave decline from the 2007 high may be complete. Strength has been contained by the top of a parallel channel thus far. The rally from 1.3500 is a complex (w-x-y) correction. Former resistance at 1.5350 is now potential support.

Nothing has changed regarding long term bearish implications (5 wave decline from 2008 high indicates additional bearish potential and the corrective rally from .6000 confirms as much). RSI divergence along with mature wave structure at multiple degrees of trend (3 waves up from .6000, 5 waves up from .6245 and 5 waves up from .6950) favors a reversal. The former 4th wave extreme at .6950 is the objective.

The NZDUSD rally from .5484 is in 5 waves therefore the risk of at least a pullback, to at least .5829, is high. RSI divergence on the daily favors bears as well.

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 is still valid but becoming less probable by the day. At this point, remaining below 96.71 keeps the near term trend pointed down. 95.60 is short term Fibonacci resistance.

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 be 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.

The USDCHF has dropped below its March low of 1.1157. 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