Euro Decline Appears Corrective So Far
Commentary: Continue to favor the downside. We wrote yesterday that “a decline should unfold correctively with potential for a bottom to form near 1.3497 (61.8% of 1.3360-1.3719).” This count appears to be on track. Another count has the entire rally from 1.3360 as larger wave B within a more complex correction from 1.3852. If this is the correct count, then wave C of the correction should be underway now and the decline should accelerate soon. Dropping mich below 1.3497 favors the latter scenario. Either way, both scenarios are near term bearish.

Strategy: Remain Bearish, move risk to 1.3728, target 1.3510 and TBD

Japanese Yen Bearish Pivot at 115.32
Commentary: The USDJPY continues to trade in a range but a break below 115.33 gives scope to a test of the 61.8% of 113.86-116.61 at 114.91. There are many possibilities right now. A triangle could be unfolding as wave B within the large A-B-C correction from 111.59, or a flat as wave B, or wave C may be underway from 113.85. We can say that “the USDJPY has traced out 5 waves lower (which is large wave 1)from 124.13 to 111.59, indicating a large degree trend change.” Since the low at 111.59, an A-B-C correction is unfolding as large wave 2, although, as mentioned, the strucutre of that decline is not clear. A cautious bearish bias is warranted now, against 116.46, as there are 5 waves down from 116.46 to 115.64. One possible outcome is detailed in the chart above.

Strategy: Flat (waiting for wave 3 bearish opportunity)

British Pound Still Looking for a Test of 1.9961
Commentary: The structure of Cable is similar to the EURUSD. 5 waves higher may have ended at 2.0233, so we are looking for a decline to at least the prior 4th wave at 1.9961. The 61.8% of 1.9651-2.0233 at 1.9874 is also a potential bottoming point. An alternate count is much more bearish and places Cable in a large wave C decline from 2.0233 within a larger complex correction from 2.0632. As is the case with the EURUSD, the structure of the decline will alert us to the proper count (if in 5 waves, then favor the more bearish count).

Strategy: Flat

Swiss Franc Choppy From 1.1993
Commentary: There is no change to the outlook that calls for a terminal thrust to come under 1.1815 while 1.2215 remains intact. “The daily chart shows a clear 5 wave rally from the December 2004 low to the November 2005 high. Everything since has been a correction. However, the correction is not complete. A complex correction has unfolded from the November 2005 high (W-X-Y). Wave X is a triangle, which means that we should expect a terminal thrust lower to complete the correction. The thrust to 1.1815 is most likely just the first leg of wave Y lower. As such, we are looking for price to come under 1.1815 before any meaningful bottom is in place.” Near term, price just tested the 61.8% of 1.2215-1.1993 (wave 1 of Y). 1.2135 may be the top of wave 2 of Y, so this is a high probability, high reward/risk bearish entry. The rally from 1.1993 is clearly corrective as the waves are choppy and overlapping.

Strategy: Remain bearish, against, 1.2215, target below 1.1815

Canadian Dollar 1.0475 a Brick Wall
Commentary: There is no change to the outlook that calls for a terminal thrust to come under 1.1815 while 1.2215 remains intact. “The daily chart shows a clear 5 wave rally from the December 2004 low to the November 2005 high. Everything since has been a correction. However, the correction is not complete. A complex correction has unfolded from the November 2005 high (W-X-Y). Wave X is a triangle, which means that we should expect a terminal thrust lower to complete the correction. The thrust to 1.1815 is most likely just the first leg of wave Y lower. As such, we are looking for price to come under 1.1815 before any meaningful bottom is in place.” Near term, price just tested the 61.8% of 1.2215-1.1993 (wave 1 of Y). 1.2135 may be the top of wave 2 of Y, so this is a high probability, high reward/risk bearish entry. The rally from 1.1993 is clearly corrective as the waves are choppy and overlapping.

Strategy: Remain bearish, against, 1.2215, target below 1.1815

Australian Dollar To Drop Below .8051
Commentary: The rally from .8051 is most likely wave b of B within an A-B-C from .7673. Look for a drop below .8051 and possible test of the 61.8% of .7673-.8333 at .7925. A bullish opportunity presents itself there as we would then look for price to turn higher in wave C of the correction from .7673 and eventually test the 61.8% of .8870-.7673 at .8412.

Strategy: Flat

New Zealand Dollar Looking to Test .6869
Commentary: The NZDUSD already tested the 61.8% of .6639-.7272 at .6881, so it has been out contention that a b wave low was already in place at .6869. However, Kiwi has falied to turn higher, opening up the possibility of a test of .6869. The next potential support level would be the 78.6% at .6775 followed by the low at .6639. Given the outlook for the Aussie, we expect one more rally leg (above .7272) before the next major bear wave.

Strategy: Remain bullish, against .6869, target .7500

Jamie Saettele is a Technical Currency Analyst for FXCM.