Top Currency Trading Ideas for the Week of May 5, 2008

The EURUSD bias is bearish as long as price is below 1.5643. Potential trendline resistance is near 1.55 and short term resistance extends to 1.5650.

EURUSD

Last week, we wrote that “the EURUSD did make one more high (slightly) at 1.6018 but the large 4th wave correction that we expected is underway. The Fibonacci support zone does not begin until 1.4667.” Since 1.6018, the EURUSD has fallen like a rock. Rallies should proved corrective (see short term chart) and the bearish objective is not until below 1.50. The drop from 1.6018 is probably a 4th wave within the 5 wave advance from 1.1640. Measured support does not begin until 1.4668 (38.2% fibo).

We are bearish as long as the EURUSD is below 1.5643. Potential trendline resistance surrounds the 1.55 figure and chart resistance from a former congestion zone extends to 1.5546. A short term bearish target is at 1.5230.

STRATEGY: Bearish, against 1.5643, target below 1.5342

USDJPY

Catching 5th waves can be difficult sometimes so we are focusing on the big picture. The USDJPY count that treats the rally from 95.72 as a 4th wave is valid as long as 107.20 remains intact. There is a 50% Fibo at 105.18, which coincides with the lower region of a congestion zone.

The structure of the rally from 95.72 is evidence that the larger trend remains down. The advance consists of overlapping waves and can be counted as a double zigzag (W-X-Y); which is two 3 wave segments connected by an X wave. We’ll be looking to confirm a top this week.

GBPUSD

The GBPUSD declined in 5 waves from 2.1160, indicating that a significant top is in place. The 5 wave decline is viewed as either wave 1 in a 5 wave bear cycle or wave A in a 3 wave bear cycle. In other words, longer term bearish potential is great. The rally from 1.9337 is either wave 2 or B and is complete at 2.0396. The decline should accelerate this week or next if a 3rd wave lower is underway. The alternate is still longer term bearish but treats the decline from 2.0396 as wave X in a complex correction.

We are treating the drop from 2.0396 as a leading diagonal (wave 1 of C within the A-B-C decline from 2.1160). Under this interpretation, the GBPUSD rally from 1.9599 is wave 2 within the 5 wave drop (wave C) from 2.0396. However, the decline from 2.0025 is choppy and may be a correction. Until proven wrong (which requires a rally through 1.9909), we are sticking with the bearish bias. A resistance line from mid-March has held and keeps bears in control.

STRATEGY: Bearish, against 1.9909, target below 1.9337

USDCHF

The drop from 1.1105 was wave 5 within a 5 wave drop from 1.3295. Under this count, a major low is in place and the USDCHF is working higher towards Fibo resistance; which does not begin until 1.0840. Former support at 1.0728 may provide resistance as well.

We favor the upside but the short term wave count is not clear. The USDCHF may be forming a channel and the resistance line is near 1.0650 today. Support should be strong near 1.0464 and the short term bias is bullish as long as price is above 1.0300.

USDCAD

The decline from the 2002 high at 1.6189 may be complete as a long term double zigzag corrective decline. If this count is correct, then a multi-year low is in place for the USDCAD.

We remain aggressive USDCAD bulls as advances since the .9055 low are in 5 waves and declines are in 3 waves. Near term, price should remain above .9998 and we will not even think about an objective until the pair has exceeded 1.0324. Near term, the rally from 1.0037 is in 5 waves and may be wave i of a bull cycle. Short term support is at 1.0115/40.

STRATEGY: Bullish, against 1.0037, target above 1.0324

AUDUSD

Longer term, the AUDUSD is in the process of forming a major multi year top (a top could be in at.9541...more on that in the short term chart). We view the advance from the 2001 low as an A-B-C advance. The rally from the 2004 low at .6771 is wave C. The rally through the November 2007 high at .9400 satisfies minimum expectations for wave 5 of C from .8512. The longer term implications are that a multi-year top will form (possibly has already formed) and the AUDUSD will decline significantly.

The AUDUSD has come under .9290 so it is possible that an A-B-C decline from .9541 is complete. However, C waves usually extend to the point where equality is reached with wave A; which in this case is at .9219. Also, it remains possible (as long as price is below .9470) that a much larger decline is in its early stages. As such, remain bearish against .9470.

STRATEGY: Bearish, against .9470, target TBD

NZDUSD

The break of a support line drawn off of the 8/17/07 and 1/22/08 lows strongly suggests that the wave C decline has started. The long term count calls for this C wave to eventually end below .5927.

Our preferred count has been that a 1st wave down from .8215 is a leading diagonal and a wave 2 bounce ended at .8033. The NZDUSD has dropped below .7781, which makes a strong case that a 3rd wave decline is underway. Keep risk at .7879.

STRATEGY: Bearish, against .7879, target TBD

DailyFX

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