Published on 07/26/2006

In the daily currency technicals, the euro starts turning up, the British pound pokes above 1.8400, and the Swiss franc strengthens with the euro.

Greenback Strength Gives Way To Weakness

EUR/USD - The case that a bottom is in place or close to in place is more compelling now. The decline from 1.2712 is in an unmistakable 3 waves. The decline from 1.2712 to 1.2603 is nearly identical to the decline from 1.2671 to 1.2557 (109 pips vs. 114 pips). Additionally, the 1.2557 low is very close to the 61.8% fibo of 1.2456-1.2712 at 1.2554. If 1.2557 was the end of corrective wave 2, then wave 3 has started and probability favors a rally past the 1.2712 high. A break above 1.2712 exposes a potential trendline from the 1.2976 high and 1.2859 high near the 1.2800 figure. Another potential trendline from the December 2004 high at 1.3666 and the 1.2976 high comes in near the 1.2900 figure. The favored bullish view is intact unless price breaks below the 1.2456 low, at which point the picture must be reevaluated.

USD/JPY - Could USD/JPY have topped.at least temporarily? Today's high is just shy of the 61.8% fibo of 117.88-115.81 at 117.43. The near future should tell us a lot as price is currently right at a short term supporting trendline from the 7/21 low at 115.81. A break of this line would expose that 115.81 low. Additional losses below there would target the 61.8% fibo of 113.41-117.88 at 115.12. A bounce off of the trendline could certainly result in the resumption of the uptrend however and a test of the 117.88 high. We think it important so we will note the current positioning in JPY futures contracts again today. Speculators are short the largest amount of JPY since the report week of 2/21/2006. USD/JPY turned down from near 120.00 a few weeks after that report and tumbled to 110.00.

GBP/USD - Cable is similar to EUR/USD in that the 3rd wave (1.8535-1.8383) of the correction (if this does prove to be a correction) is nearly identical to the 1st wave (1.8597-1.8444) of the correction. The lengths are in fact 153 and 152 pips. Further, the decline from 1.8597 retraced almost exactly 50% of the 1.8179-1.8597 advance. Still, additional weakness could persist to the 61.8% fibo at 1.8337 or the 7/19 low at 1.8227. Hourly RSI recently increased from below 30, which reinforces the bullish bias.

USD/CHF - USD/CHF has retraced 78.6% of the move from 1.2595 to 1.2348. Bearish divergence with oscillators on the hourly at yesterday's 1.2546 high favors a turn lower. Additionally, the pair is coming into a former swing low (support) from the 1.24 low at 1.2553. This level combined with the 7/19 high at 1.2595 provides a band of resistance. If the pair does turn, then initial support is at the 7/25 high at 1.2420.

USD/CAD - The failure of USD/CAD to challenge the 1.1456 high from 7/24 must be disconcerting to bulls. The longer term bias is up due to the break of the ascending triangle at 1.1260/80 and the series of higher lows at 1.0927, 1.0960, 1.1035, and 1.1255. However, the rally looks tired on the daily chart. Divergence with CCI on the daily and CCI declining from well above 100 to just above 100 favor a decline in the near term. Immediate support is at the 7/24 low at 1.1366 with a break exposing the 38.2% fibo of 1.1039-1.1456 at 1.1296. Price action may seem choppy right now, but this fits with the gradual changing of a long term trend as a large distribution low is formed.

AUD/USD - AUD/USD has rallied back to its double top high at .7565. The short term hourly action has been so choppy so we'll concentrate on the daily chart today. An upward sloping channel has formed from the .7270 low on 6/28. A continuation within the channel probes the 61.8% fibo of .7791-.7270 at .7592 and the 78.6% fibo at .7679. The 78.6% fibo and a projected trendline from the 7/13 high at .7565 would meet on either Friday or Monday. RSI on the daily is steadily rising and supports the bullish argument.

NZD/USD - Kiwi is looking more bearish by the day. The pair has continued to hold below the 61.8% fibo of .6443-.5927 at .6245 (on a daily closing basis). This combined with the long wicks on the daily candles (above the bodies) suggest strong selling pressure at .6275/82 (7/25 and 7/18 highs). In any case, a break higher would probe the 78.6% fibo of .6443-.5927 at .6332. However, price is consolidating within a contracting triangle (visible on the hourly) and the pair most recently bounced off of the supporting line of the triangle, keeping the near term directional bias up to test the .6275/82 level.

Jamie Saettele is a Technical Currency Analyst for FXCM.