Euro Complex Correction Unfolding
Commentary: Near term, the EUR/USD has traded in a choppy manner, which may be a triangle. A thrust below 1.3637 is possible (see alternate arrow arrangement in red) before the expected move higher above 1.3727. It seems more likely now that a more complex correction (much like GBP/USD) is playing out from 1.3608. The rally from 1.3608 to 1.3727 is wave a and the decline from there is wave b. A rally in wave c towards 1.3750 is expected before a reveral and drop under 1.3608. This places the dominant 3 wave decline from 1.3852 as larger wave A and everything that has followed as larger wave B.

Strategy: Remain bullish, against 1.3608, targets 1.3750 (then flip to short against 1.3852)

Japanese Yen In Middle of Correction…Expect Choppy Price Action

Commentary: The USD/JPY is unfolding as expected. We wrote yesterday that “we are execting the USD/JPY to gain correctively until 119.50 before another leg lower brings price under 117.60.” Expect choppy action in the USD/JPY for the rest of the week as the correction is in its middle stages. The 200 day SMA is at 119.59, which reinforces resistance at that level. The drop under the 200 day SMA suggests a longer term reversal is underway.

Strategy: Move to flat (previously bearish)…look to get bearish close to 119.50 (against 120.73)

British Pound Triangle Indicates Rally Will be Terminal

Commentary: The GBP/USD is also unfolding as expected. We are treating the rally from the 7/29 low at 2.0181 as wave B in a large A-B-C correction from 2.0654 (same pattern as the EUR/USD). A triangle has formed from yesterday’s high (2.0349) and expectations are for a terminal thrust higher towards 2.0400/73. 2.0400 is the 100% extension of 2.0181-2.0378/1.0203 and 2.0473 is the 61.8% of 2.0654-2.0181. In summary we are looking for a rally to 2.0400/73 before a top and reversal that brings price under 2.0181.

Strategy: Remain bullish against 2.0181, target 2.0400 (flip to short between 2.0400/73 against 2.0654, targeting a drop under 2.0181)

Swiss Franc Breaking From Wedge

Commentary: The USD/CHF remains choppy but the breakout from the wedge idea that we proposed yesterday seems correct. “The decline from 1.2165 could be a diagonal (wedge) in the B position in a large A-B-C correction from 1.1960. This would suggest that wave C will exceed 1.2165 before the next leg lower occurs.” Exceeding 1.2165 satisfies minimum expectations. The 50% of 1.2468-1.1960 at 1.2214 is a potential reversal point.

Strategy: Flat

Canadian Dollar In Reversal Zone

Commentary: We wrote yesterday that “we are looking for a corrective setback in the USD/CAD to unfold. The rally from 1.0340 is clearly impulsive, signaling that the trend has changed from down to up. Wave c of the a-b-c correction from 1.0699 is unfolding now and should bottom in the 1.0477-1.0562 zone. This is the 61.8% to 38.2% of 1.0340-1.0699.” The USD/CAD came into the reversal zone and found a low yesterday at 1.0551. Whether or not this is ‘the’ low of wave 2 remains to be seen. It is possible that the pair chops lower to test 1.0523 or the bottom of the zone at 1.0477 (alternate arrows in red). Regardless, long USD/CAD is one of the best opportunities in the coming weeks.

Strategy: Bullish now, against 1.0340, target TBD

Australian Dollar Flat Correction Unfolding

Commentary: No change to the Aussie. “Bigger picture, the decline from .8870 is the beginning of larger wave 4 within the 5 wave rally from .7268. Over the next several weeks, the AUD/USD could decline to the former 4th wave at .8162. Wave A of the decline ended at .8458 and wave B is underway now. Wave B is unfolding as a flat. The last leg of the flat is unfolding now and could extend to above .8615 before wave C of the correction brings price much lower. The limit for wave B of this correction is .8399 (138.2% of .8458-.8614). A drop under there suggests that something more bearish is unfolding.”

Strategy: Flat

New Zealand Dollar Same as Aussie

Commentary: No change to the Kiwi . “NZD/USD is in the exact same position as the AUD/USD. A larger B wave or (2nd wave) is unfolding from .7553, which we expect to exceed .7731 before wave C (or 3rd wave) brings price much lower. The 38.2% of .8108-.7553 at .7765 is an objective for the end of the rally from .7531."

Strategy: Flat

Jamie Saettele is a Technical Currency Analyst for FXCM.