Dollar Plunges; Pullback Probable but Break is for Real

The price smash in the USD has confirmed our larger bearish bias and increases the probability that the EURUSD is headed to the mid 1.60's and the GBPUSD above 2.04. Pullbacks are likely but and USD strength should be viewed as an opportunity to add to / initiate USD short positions.

EUR/USD

We wrote yesterday that "the wave 2 of V low is at 1.5611 and price shouldn't even come close to there. Expect the rally to accelerate and ‘go parabolic' soon." The EURUSD rally has accelerated as expected in wave 3 of V. There is a chance that wave i of 3 is near complete and that a setback, ending near 1.5840, will begin soon. However, this is a major breakout and the potential for extension does exist. Short term traders would be served well be lightening up on longs since this is just the second test of 1.60. However, keep the bigger picture in mind. The initial objective is not until 1.6325.

STRATEGY: Bullish, against 1.5611 (lighten up now and we'll look to re-enter soon…probably near 1.5840), targets 1.6325 and above

USD/JPY

We wrote yesterday that "the USDJPY decline from 108.57 could be the beginning of larger wave 3 since the advance from 95.72 is in 3 waves. If the count above is correct, then wave C is nearly 61.8% of wave A, a common relationship. A clean break of the support line shown above would inspire confidence in the bearish case. A short bias is warranted against 107.75." The USDJPY has tanked today, confirming out bearish bias. A short term objective is 101.97 although we ultimately expect new lows (under 95.72) later this year. Look for near term resistance at 105.37. Move risk to 106.81

STRATEGY: Bearish, against 106.81, targets 101.97 and below

GBP/USD

We wrote yesterday that "the most probable count in our estimation is that wave C of a flat is underway and will exceed 2.04. This fits with the larger USD bearish count. In summary, odds are high that the GBPUSD continues higher from current price." This assertion proved correct as Cable has soared higher today. Corrections are expected along the way and we'll look to identify the end of those corrections as they unfold. Coming back to 1.9942 (congestion) is possible over the next few days. It is still possible (although we put the probability as low) that a triangle is unfolding and that a D wave will begin soon and end near 1.96. Our strategy is to take some profits now and hold the rest for a rally through 2.04. Move risk to 1.9810.

STRATEGY: Bullish, against 1.9810, target 1 is NOW, target 2 TBD

USD/CHF

There is no change to recent commentary. "The USDCHF is probably on its way to a new low. The advance from .9647 is in 3 waves and therefore corrective. The drop from 1.0624 may be a series of 1st and 2nd waves. The pattern is not especially clear though, and we would rather pursue opportunities elsewhere. If the bearish bias is correct, then the USDCHF should remain below 1.0540 but a push through 1.0352 is possible." The USDCHF has kept with the weak USD theme today and there is no reason to change that outlook. Price should remain below 1.0250.

USD/CAD

Our USDCAD bullish bias was proved wrong as 1.0047 failed to hold. This means that wave E is still underway but is probable close to an end. E waves (as we've written here often) are usually sharp and the decline has accelerated. In fact, do not be surprised to see a test of the lower triangle line near .99 before the USDCAD turns up. We'll look to identify the bottom late this week or next week.

AUD/USD

The AUDUSD has exceeded .98 and is testing the 100% extension of .9327-.9667/.9475 at .9815 now. On the daily chart, the pair is testing a parallel channel line. Also, rapid rallies such as the one that we have just witnessed are prone to quick reversals. While we do expect a test of 1.00 at some point, we think it wise to exit at the confluence of this fibo extension (.9815) / long time parallel channel line.

STRATEGY: EXIT

NZD/USD

We have written recently that "the NZDUSD is expected to advance to the 50% of .7921-.7445 at .7683 and perhaps even the 61.8%-78.6% at .7740-.7920. A rally to there would fill the 6/4 gap. The up-down sequence from .7445 is probably waves A and B. Wave C is considered underway as long as price is above .7483; bullish bias is warranted against there." The target at .7720 has been hit. The next trade for NZDUSD will be a short against .7921. We'll wait for now and see how action around this gap plays out.

STRATEGY: EXIT

DailyFX

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