Published on 08/14/2006

In the daily currency technicals, the euro probes 1.2700, the Japanese yen makes a Head and Shoulders, the British pound slips, and the Swiss franc loses 1.240.

Dollar Rally Looks Tired

EUR/USD - The EURUSD is supported by the 20 day SMA just above the 1.2700 figure. The decline from 1.2971 to 1.2456 is in 3 waves which means that the rally from 1.2456 to 1.2908 could be the first leg of a larger 5 wave bullish sequence. A short term double bottom and bullish divergence with RSI on the hourly just above the 38.2% fibo of 1.2456-1.2908 at 1.2736 gives scope to gains going forward. Immediate support is today's 1.2709 low. Weakness below there exposes the 50% fibo of 1.2456-1.2908 at 1.2682.

USD/JPY - We mentioned Friday that "The larger correction still takes the form of a diagonal triangle - which could end in a thrust higher to resistance before a bigger turn lower. Resistance is at the 61.8% fibo of 117.88-113.95 at 116.38 as well as the 6/27 high at 116.67. A rally to this zone would also form a symmetrical head and shoulders pattern." Today's high is at 116.66 and bearish divergence with oscillators on the hourly favor the downside. A break below intraday support at 116.15 would suggest that the turn is occurring.

GBP/USD - Cable continues to slip and currently trades below the 1.8900 figure. There is bullish divergence with RSI on the hourly at today's low at 1.88623 (a previous congestion area as well). A dip below there is potentially supported by a trendline from the 1.8176 low. On a larger scale, the rise from 1.7046 (November 2005) appears to be in 5 waves - which means that the uptrend could be nearing an end. Negative divergence with oscillators on the daily (and overbought RSI) indicate slowing upside momentum as well. Still, gains past 1.9128 target the 1.9215-1.9323 area (congestion from 4/20/2005 high to 3/8/2005 high).

USD/CHF - We mentioned Friday that "we could see strength to test the confluence of the 161.8% fibo extension of 1.2191-1.2331 (from 1.2192) / 7/28 high at 1.2418/24. This zone is ideal for the terminus of a 3 wave correction from 1.2191. The 61.8% fibo of 1.2595-1.2191 is just above there at 1.2438." USDCHF rallied to 1.2436 Friday. Bearish divergence with RSI on the hourly and RSI falling from overbought territory both favor a turn lower.

USD/CAD - USDCAD tested the highly touted supporting trendline from the 1.0927 low on Friday and has since rallied to test resistance at 1.1260/70. This level is former resistance (before the breakout to 1.1456) turned support. On the hourly, price has broken above a resisting trendline from the 1.1456 high. The last week saw price range primarily between 1.1170 and 1.1270. A continuation of the range means that price would have to turn lower fairly soon. A break above the 8/10, 8/11 highs at 1.1281 exposes the 8/4 high at 1.1345.

AUD/USD - AUD/USD has held below the 78.6% fibo of .7791-.7270 (on a closing basis) and is now trading back below former resistance at .7680. Short term momentum is down as evidenced by RSI sloping down on the hourly but RSI is at 30 - suggesting that immediate downside action is limited. Bolstering the longer term bearish case is bearish divergence with oscillators on the daily chart. However, a push above Thursday's high at .7713 could see the 5/17 high at .7725 challenged.

NZD/USD - Kiwi is looking more bearish price has continued to hold below the 78.6% fibo of .6443-.5927 at .6332 (on a daily closing basis). The wicks on the daily candles are long and at the upper Bollinger band. Downside momentum has picked up and a continuation of weakness probes the former triple top at .6270/80. Resistance is at today's high at .6373.

Jamie Saettele is a Technical Currency Analyst for FXCM.