Trading Choppy as Correction Nears End

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By Jamie Saettele | Published 06/13/2006 | Currency | Unrated

Trading Choppy as Correction Nears End

EUR/USD â�,�“ EUR/USD declined for the 6th day in a row for the first time since 11/10/2005 â�,�“ which was 3 days before the 1.1640 low. In fact, the daily chart from 10/6/05 to 11/10/05 (leading up to the 1.1640 low) is eerily similar to the daily chart from 5/15/06 to present. Both are 3 wave corrections and the current decline possesses very nearly the same Fibonacci relationships as the 10/6-11/10-05 decline. The 2005 version shows that the 3rd wave was equal to 1.618 multiplied by the first wave. The present version shows that we are about 60 pips from the point at which the 3rd wave would equal 1.618 multiplied by the first wave (this would occur at 1.2518). There are other Fibonacci relationships near there that we have touched on in recent days â�,�“ the 38.2% fibo of 1.1825-1.2971 bull wave is at 1.2535.

USD/JPY â�,�“ USD/JPY is little changed as it continues to hold above 114.00. Massive negative divergence with RSI at a double top on the hourly suggests that the pair is topping out and that a decline is upon us. The structure of the correction from 108.96 is in A-B-C zigzag form with the current rally as the C wave. A property often seen in these corrections is the equality of the A and C waves - with the length of wave A equal to 398 pips (112.94-108.96) and wave C starting at 111.33, we find that 111.33 + 3.98 (398 pips) approximates an end to the overall correction at 115.31. This is very close to the 61.8% fibo level at 115.07 as well as the 4/26 high at 115.36.

GBP/USD â�,�“ GBP/USD is similar to EUR/USD as it is in a C wave (3rd wave of a correction) and thus nearing the end of its correction of the rally to 1.9025. The pair has held above the supportive base that we mentioned yesterday at 1.8367. There is still the possibility that the pair makes one more thrust down to either the 38.2% fibo of 1.7230-1.9025 at 1.8340, or the confluence of the 5/1 / 5/2 lows at 1.8203/05 before resuming the larger uptrend. Initial resistance comes in at the 38.2% fibo of 1.8880-1.8362 at 1.8559.

USD/CHF â�,�“ USD/CHF looks like the inverse of GBP/USD and trades in a consolidating ascending triangle, giving scope to one more rally before a resumption of the larger downtrend. A wall of resistance has formed at the last 3 dayâ�,��"�s highs at 1.2362/68 but a break past there exposes the 38.2% fibo of 1.3224-1.1919 at 1.2420. Still, a reversal to the downside is suggested by the fact that the pair has stalled at the upper Bollinger band on the daily (also a doji two days ago).

USD/CAD â�,�“ USD/CAD has bounced off of support from a gathering of daily lows in the 1.0970 area. Still, wave structure favors a bearish bias with the 1.1243 high on 6/8 marking the end of a 3 wave correction and thus the subsequent decline to 1.0960 is likely the beginning of a new downtrend. As such, any strength is viewed as a correction of weakness. Only a rally above 1.1243 would negate bearish implications. Resistance comes in at fibo levels of the 1.1243-1.0960 bear wave at 1.1067 (38.2%), 1.1101 (50%), 1.1134 (61.8%), and 1.1182 (78.6%).

AUD/USD â�,�“ AUD/USD fell below the .7400 handle and pierced the previous low at .7390 on 6/7. The decline suggests that the large correction of the .7014-.7791 April-May bull wave is not yet over. Projections for the end of the correction focus on the .7315/25 area. The 61.8% fibo of .7014-.7791 comes in at .7315 and wave C would equal wave A (.7791-.7465) at .7525. Further, the 161.8% fibo of .7390-.7502 is at .7320. A continued bounce targets yesterdayâ�,��"�s low at .7453.

NZD/USD â�,�“ Kiwi is similar to AUD/USD in that the rally attempt off of recent lows has failed. The difference is that Kiwi trades in a triangle on the daily following a downtrend while Aussie trades in a zigzag correction following an uptrend. Triangles are often 5 waves and this recent decline from .6428 is a 4th wave. The supporting line from the triangle comes in at the 78.6% fibo of the .6140-.6428 bull wave at .6202. For this to unfold as a 5 wave triangle, NZD/USD needs to bounce before or at the 5/22 low of .6142. A break below there would turn prospects much more bearish.

Jamie Saettele is a Technical Currency Analyst for FXCM.

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