Euro 5 Waves Down Indicates Near-Term Trend Change
Commentary: Looking at the hourly, a drop under 1.3696 would complete a 5 wave decline from 1.3852. A retrace in larger wave 2 or b would follow and that would offer an opportunity to get short for a much bigger decline. Sometimes, a 5 down can signal the end of a correction (c wave), but in this case we believe that the 5 down signals the beginning of a larger decline because an ending diagonal ended at 1.3852, which means that the decline is from the top and most likely the beginning of the decline - not the end.

Strategy: Flat

Japanese Yen 200-Day SMA
Commentary: We wrote yesterday that “From an EW standpoint, a double zigzag may be unfolding from 124.13. The first a-b-c decline (wave W) is from 124.13-120.97. Wave X is from 120.97-122.60 and wave Y is underway now (will either be an a-b-c or i-ii-iii-iv-v). Waves W and Y would be equal at 119.45, very close to the mentioned 50% fibo at 116.64 and 1 pip away from the 5/11 low at 119.46. We are looking for a decline to this level.” The USD/JPY just dropped to 119.62, very close to our objective, so be wary of chasing it lower. A bounce could test resistance at 120.74.

Strategy: Flat

British Pound Breaks 2.0450
Commentary: The idea that Cable is tracing out a larger 4th wave remains possible, which means that this down leg could be just the first leg of a larger correction. The line in the sand for the larger bullish picture is 2.0203. However, given the EXTREME sentiment (speculative positioning extremely long), Cable could very well continue to drop fast. The pair is coming up on potential support from a line drawn off of the 6/14 and 7/6 lows. A drop below exposes the 61.8% to 50% zone of 2.0056-2.0654 at 2.0284-2.0355. The short term structure is unclear. But, given the high correlation between EURUSD and GBP/USD and given that the EUR/USD structure is bearish, a bearish stance on Cable is reasonable.

Strategy: Bullish against 2.0203, targeting 2.1000 (but monitoring closely)

Swiss Franc Long Term Inverse Head and Shoulders
Commentary: The USD/CHF short term strucutre is also unclear therefore we are taking a look at the weekly. The 14 month inverse head and shoulders pattern remains in place as long as price is above 1.1877. An inverse head and shoulders is a derivation of a triple bottom. The inverse head and shoulders pattern is not confirmed until a break of the neckline but the proximity of 1.1877 skews reward to risk in favor of bulls.

Strategy: Flat

Canadian Dollar High In Place (USD/CAD Low)
Commentary: The USDCAD may be in a small wave 3 higher from 1.0340. We have continued to focus on the potential for a significant bottom to be established in the USD/CAD due to the weekly wave structure and COT report (same as GBP). The rally above 1.0495 breaks the sequence of lower highs and is the signal that we were looking for the get bullish.

Strategy: Bullish now, against 1.0340, target TBD

Australian Dollar .8786 Key to Directional Bias
Commentary: We wrote yesterday that “risk of a reversal is high as evidenced also by the RSI divergence (on multiple time frames).” The AUD/USD has reversed and a drop under .8786 would indicate additional bearish potential as that would throw a potential ending diagonal formation out the window. This may be the beginning of a large wave 4 decline that declines to at least .8707.

Strategy: Flat

New Zealand Dollar .7879 Key to Directional Bias
Commentary: The form of the decline remains corrective but a drop under .7879 (21 day SMA at .7874) would make overlapping waves and indicate that a larger correction (or diagonal) was underway. Daily RSI has dropped under 70 on the daily, which signals additional bearish potential.

Strategy: Move to flat (from bearish)

Jamie Saettele is a Technical Currency Analyst for FXCM.