Euro Breaks Below 1.3700
Commentary: We wrote yesterday that “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.” This is exactly what happened as the EURUSD dropped below 1.3696 to hit 1.3693. The rebound from there was a correction to 1.3770 and the bigger decline is underway now. This decline should extend to at least the 100% extension of 1.3852-1.3693 to 1.3611, but bearish potential is much larger.

Strategy: Bearish now, against 1.3770, target TBD

Japanese Yen Tests Resistance Line
Commentary: The decline in the USDJPY has been nothing short of impessive. The pair has found interim support from the line drawn off of the May 2006 and March 2007 lows. Dialy RSI is in oversold territory as well. It is interesting to note that a dip into oversold or overbought territory often signals that the pair is in the middle of its move. As such, we expect the support line to be broken and for the USDJPY to continue lower next week. Former support at 119.80 is now resistance.

Strategy: Flat

British Pound Breaks Support Line
Commentary: We wrote yesterday that “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.” Althought price has yet to breach 2.0203, the drop below the line drawn off of the 6/14 and 7/6 lows instills confidence in the near term bearish strucutre. 2.0203 is the next support level (this is also the 161.8% extension of 2.0654-2.0424/2.0561. The intraday reaction high at 2.0391 should offer strong resistance.

Strategy: Move to flat, get bearish near 2.0391, target TBD

Swiss Franc Diabolical Range
Commentary: There is no change in our longer term outlook as the short term strucutre is unclear. The USDCHF 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 Clear 5 Wave Move Strongly Indicates Major Trend Change
Commentary: We wrote yesterday that “the rally above 1.0495 breaks the sequence of lower highs and is the signal that we were looking for the get bullish.” Now we also have a clear 5 wave rally from 1.0340. A corrective setback should find strong support between 1.0402 and 1.0523. This would present an opportunity for bulls to act.

Strategy: Bullish now, against 1.0340, target TBD

Australian Dollar Large Wave 4 Correction Underway Towards .8162
Commentary: We wrote yesterday that “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.” The AUSUSD has dropped off of a cliff and traded close to .8550 this morning. We are treating the decline as the beginning of larger wave 4 in the 5 wave rally from .7268. Over the next seversal weeks, the AUDUSD could decline to the former 4th wave at .8162. However, since we are viewing this as a larger correction, then trading is likely to prove choppy over the next several weeks (but chop lower).

Strategy: Flat

New Zealand Dollar 5 Waves Down Indicates Trend Change
Commentary: For the first time in a while, we have a clear pattern to work with. The decline from .8108 is in a clear 5 waves and is either larger wave 1 or A of either a 1-2-3-4-5 or A-B-C decline. A corrective rally should unfold now, and intial resistance is at .7873. We will watch the form of the decline and look for an opportunity to get bearish.

Strategy: Flat

Jamie Saettele is a Technical Currency Analyst for FXCM.