Range Conditions Nearing an End

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By Jamie Saettele | Published 08/30/2006 | Currency | Unrated

Range Conditions Nearing an End

EUR/USD â�,�“ The EURUSD rally was stymied this morning by selling at the 8/23 high at 1.2851. The past few daysâ�,��"� action has been choppy, but this is when breakouts are most probable. Reinforcing this idea are the tight Bollinger bands on the daily. It is possible that the decline from 1.2938 to 1.2723 is the first of a 3 wave corrective pattern to correct the 1.2456-1.2938 rally. Thus, this rally from 1.2723 is the second wave and would be followed by a one more leg down before the resumption of the larger uptrend. Todayâ�,��"�s high at 1.2853 is ideal for the end of the rally from 1.2723 as the 61.8% fibo of 1.2938-1.2723 is at 1.2856. Additionally, the third corrective wave (beginning at 1.2753) would in all probability equal the first (1.2938-1.2723). The calculation yields (1.2753 â�,�“ (1.2938-1.2723) = 1.2638). This is mere pips away from the 61.8% fibo of 1.2456-1.2638 at 1.2641.

USD/JPY â�,�“ The USDJPY is at a critical juncture as the pair trades right at a short term resisting line from the 8/25 high at 117.40. The proximity of the line (as well as 117.40 just 40 pips higher) limits upside risk but a break above 117.40 suggests that 117.88 is in sights. A decline from the resisting line probes the 8/29 low at 116.49 with a supporting trendline (from 113.95) just below at 116.27. It takes a break below 116.27 to suggest that a more substantial decline is underway.

GBP/USD â�,�“ Cable strength has continued as buyers have managed to push the pair above the 8/16 high at 1.9023 â�,�“ if only momentarily. The next resistance level is the 78.6% fibo of 1.9144-1.8775 at 1.9065. A push above 1.9065 exposes the 1.9144 high. Still, divergence with hourly oscillators would seem to limit upside potential. If prices do move lower, then support is at todayâ�,��"�s low at 1.8970. A break below the 8/29 low at 1.8896 instills confidence in the downside.

USD/CHF â�,�“ The USDCHF has dipped to the 61.8% fibo of 1.2182-1.2423 at 1.2274 but has rallied somewhat convincingly the last hour (1000 GMT) to just below the 1.2300 figure. Hourly oscillators show bullish divergence at each successive low, implying that the pair may turn higher (Swissie is similar to Cable in this respect). Still, only a break above 1.2379 (8/29 high) would begin to argue that the path of least resistance is higher. The same is true for 1.2182 regarding the downside.

USD/CAD â�,�“ USDCAD continues to hover below the 1.1100 figure. The pair appears to be tracing out the 3rd wave of a correction from 1.1456. Where might this correction end before buying returns? The 3rd corrective wave (beginning at 1.1319) would equal the first (1.1456-1.1170) at 1.1033. This is significant because the 78.6% fibo of 1.0927-1.1456 is at 1.1040 (just 7 pips away). This fits with the notion that initial moves at turning points are often retraced a large amount before a continuation. The initial move in this case is 1.0927-1.1456. USDCAD fell to 1.1049 last week and Fridayâ�,��"�s candle is a spinning top at the lower Bollinger band (daily). The evidence points to a rally from nearby levels. Additional evidence that a bottom is forming is CCI rising from above -100 in recent days.
However, a break below 1.1040 exposes the 6/12 low at 1.0960.

AUD/USD â�,�“ As we have focused on in recent commentary, the longer term bias is a bearish one as evidenced by the break of the supporting trendline from.7270. The last two dayâ�,��"�s rallies have sent the pair to the 78.6% fibo of .7670-.7549 at .7644. A break above .7644 targets .7670, but only a push through .7670 negates the immediate bearish bias. A short term trendline from .7549 (8/25 low) rests at .7612. A break below there makes a case for a larger decline to eventually test the .7500 figure.

NZD/USD â�,�“ Kiwi continues to hold up well as the pair trades above previous resistance from the 8/16 high at .6439. The next bullish target is the 38.25 fibo of .7460-.5927 at .6513. However, overbought hourly conditions and bearish divergence at current levels would seem to limit near term upside potential. Initial support is at the 8/28 high at .6389.

Jamie Saettele is a Technical Currency Analyst for FXCM.

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