Thursday May 13, 2004 - 01:21:03 GMT
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Forecast for FX Majors 13th May 2004General Market Conditions
The Dollar pullback continued yesterday and pretty much reaching perfect retracements all round except with the British Pound being stronger than expected. However, we feel there is evidence to suggest the correction is over - or there is only a marginal new Dollar low remaining before the underlying uptrend resumes. If there are any further lows we see good support at 112.25-45 Japanese Yen, 1.1950-80 Euro, 1.2850-80 Swissie and 1.7855-1.7910 British Pound. We do retain the underlying bullish view and look for gains to emerge soon but to confirm we need breaks of 113.75-85 Japanese Yen, 1.1830 Euro, 1.2975-1.3010 Swissie and 1.7655 & 1.7620 British Pound. Be aware that the next leg higher for the Dollar could well be quite aggressive again.
Resistance: 113.30 ... 113.50 ... 113.80 ... 114.13
Support....: 112.80 ... 112.60 ... 112.45 ... 112.25
The rebound from the target support at 112.45 was encouraging and we feel the bias has returned to bullish. However, we would like to see 112.60-80 hold once again and from there look for a break back above 111.30-50 to confirm gains back through to 114.13 at least and we suspect higher to 114.40. Further resistance is at 114.65 and 115.00.
Given the rally from our favored 112.45 support we are less inclined to the downside. There is support at 112.60 and only below here would threaten the downside extending down to 112.25. However, only below 112.10-25 would cause a deeper pullback with next support at 111.90 and then 111.20.
Resistance: 113.50 ... 114.13 ... 114.90 ... 116.05
Support....: 112.20 ... 111.90 ... 111.20 ... 110.50
The decline to test the Fibonacci support at 112.25-45 also tested the 4-hour Pivot Cloud which held and suggests there is room for further gains. Schaff TC is now at zero while FXS-RSI is still declining but just above oversold. We retain the weekly target at 114.90-00 which should occur from the 112.45-60 area. We should allow for minor breach of the ideal 115.00 target with further resistance found at 115.40 and 116.05.
Having seen the correction extend to the perfect Fibonacci 112.25-45 support we are once again encouraged for the uptrend to resume. 112.10-25 still requires to hold and a break above 113.75-85 then 114.13 will confirm follow-through higher. This may well develop in a more choppy move as we approach the strong 115.00-116.00 weekly pivot resistance and thus watch for initial resistance at 114.40-65 then 115.00 with furher possible targets between 115.40 and 116.05.
With the bounce from 112.45 we are less inclined to follow a bearish stance. Only a move back below 111.90 would take price down to 111.20 but we feel this area should still provide support (and possibly imply a stronger bullish pattern). Thus the downside is still a cautious one with further supports below 111.20 at 110.50-70 and 109.65.
Elliott Wave Comment:
The move through to 112.47 provided what may be a clue to the larger structure higher and we are following our prime wave count from 103.42 that is rising in a diagonal triangle structure. This has a Wave [iii] target implied at 114.90 with the Wave [c] of this having one Fibonacci projection at 115.00. The mvoe down to 112.45 has completed the wave 4 of Wave [c] and we now look for gains in Wave 5 towards 115.00 with allowance given for a small overrun to 115.40-116.05.
(Updated 10th May)
Resistance: 109.25 ... 111.15 ... 112.30 ... 114.90
Support....: 104.80 ... 103.30 ... 101.30 ..... 99.50
The combination of bullish monthly, weekly and daily cycles along with a wave structure that implies both a Wave [iii] target at 115.00 and a Fibonacci target for Wave [c] of Wave [iii] at the same level encourages us to look for a move to the area over the next month. This may be slow if the Wave5 of Wave [c] develops as a diagonal triangle and thus we will judge as price develops. However, after a correction into July/August we look for Wave [v] to move up to the 120 area by quarter 4.
Resistance: 1.1940 ... 1.1965 ... 1.1985 ... 1.2030
Support....: 1.1875 ... 1.1830 ... 1.1815 ... 1.1787
Cautiously bearish but allow for a new marginal high around 1.1965-85 first
Price behaved quite immaculately yesterday with a recovery from just below the 1.1840 support that has reached the initial 1.1935 target. We are a little cautious about any further bullishness as the move to 1.1940 may have satisifed the pullback. However, any break above 1.1920-30 would suggest one last spike is possible to the 1.1965-85 area before a cap is formed. A move below 1.1830 negates the upside.
We feel the pullback higher is complete or close to completion. While we acknowledge a marginal new high around 1.1965-85 is possible we feel this will be the limit to the upside. Thus, on a bounce from this area or on a direct loss of 1.1830 we look for losses to resume. Next support is at 1.1730-45 and then 1.1640.
Resistance: 1.1985 ... 1.2030 ... 1.2085 ... 1.2140
Support....: 1.1830 ... 1.1745 ... 1.1640 ... 1.1545
Price made its way above the 4-hour Pivot Cloud but has stalled at 1.1940. Schaff TC1 has recovered towards 100 while FXS-RSI is now in neutral territory. We feel that the recovery is close to completion with only minor risk of seeing 1.1965-85 and will look for further losses to develop from here. Be aware that the next move lower could be quite sharp and aggressive.
We have seen recovery to just 5 points above the lower target at 1.1935 and consider that the pullback is complete or close to completion. Thus a more bullish scenario can only be considered on a move above 1.1965-85 and even then we see resistance at 1.2030 and 1.2085. Any break here would suggest that a further move to 1.2205 is possible.
Price came close to the 1.1950-85 resistance mentioned yesterday and while a move to this area is still possible we feel the greater risk is for a further move lower. Thus from the 1.1965-85 area or a direct break below 1.1830 and 1.1745 the larger risk is now lower towards 1.1550 at least with 1.1310 also implied.
Elliott Wave Comment:
We tend to see the move down from 1.2387 to 1.1758 as Wave [i] of Wave C. This has quite bearish implications and we need to assess the structure of the decline to confirm this strength of bearishness. Wave [i] therefore ended at 1.2180 (just short of a 38.2% retracement) and this should lead to losses over time. We see potential targets at 1.1505 minimum but more likely a move as low as 1.1310 and eventually 1.1160 is likely over a longer period of time.
(Updated 10th May)
Resistance: 1.2180 ... 1.2485 ... 1.2930 ... 1.3180
Support....: 1.1310 ... 1.1160 ... 1.0760 ... 1.0500
The cyclic structure looks bearish and should continue for around 2 weeks. Although the blue cycle is rising the larger red cycle is now declining along with the two shorter cycles. Thus the momentum lower should increase over time.
Having seen the 1.22-1.24 area consistently produce downward reactions we continue with the general bearish outlook but consider that the downside should become stronger over the coming weeks. While the 1.2200 area continues to hold look for the losses to move down to 1.1160 at least.
Resistance: 1.2950 ... 1.2980 ... 1.3005 ... 1.3035
Support....: 1.2910 ... 1.2895 ... 1.2875 ... 1.2850
Cautiously bullish although allowing for a dip to 1.2850
The decline to 1.2875 was within expectations and we feel there is evidence that the correction is complete. We prefer a sceanrio calling for 1.2895 to hold an generate further gains towards the 1.3000-10 area followed by a pullback once again. However, any drop below 1.2895 would suggest a deeper move down to 1.2850 from where we can expect recovery.
The decline has met the 1.2850-80 support range perfectly and we are cautious about any further bearishness. Only on a break of 1.2895 would we look for a further low around 1.2845-50 where we think a base can form. Further losses can only be considered on a break of 1.2850 which would then imply a drop back through to 1.2790 and posisbly 1.2755.
Resistance: 1.3010 ... 1.3085 ... 1.3225 ... 1.3395
Support....: 1.2850 ... 1.2790 ... 1.2755 ... 1.2700
Losses were made below the 4-hour Pivot Cloud but found a low in the 1.2850-80 area forcing a recovery back to the Cloud. Schaff Trend Cycle is now at zero while FXS-RSI is still in neutral territory. We cautiously feel that yesterday's low completed the correction although we should allow for 1.2850 and this will imply the next move to above 1.3226 and then 1.3475-90.
With yesterday's recovery from the 1.2850-80 area we are encouraged with the bullish view although we require a move back above 1.3010 to confirm. Until then there is still chance of the pullback dipping to the 1.2850 support but if seen we feel this will hold. The next leg higher could be quite aggressive and once 1.3010 and then 1.3085 are broken we see a swift rally towards the next resistance at 1.3475-90. Next resistance is at 1.3610.
The pullback has developed much as expected and has reached 1.2875. This may have completed the entire correction but we should allow for a dip to 1.2850. Thus only below 1.2850 would provoke follow-through to 1.2790 at least and possibly even 1.2755. Bext support would be back at the 1.2700 low and any break there would imply 1.2560 before higher.
Elliott Wave Comment:
The reversal from 1.2701 was quite critical and suggests an expanded flat correction from the original 1.3078 high. This has formed wave (ii) of Wave [a] of Wave [iii] and as such has quite bullish implications. Given this strongly bullish view we need to ensure that price action continues to support this structure. This being the case we expect shallow corrections and a move to 1.3475 and possibly 1.3610 as legitimate targets for Wave (iii). It would appear that Wave A of Wave (iii) ended at 1.3085 and we feel the 1.2850-80 area will be the extent of Wave B.
(Updated 10th May)
Resistance: 1.3235 ... 1.3475 ... 1.3610 ... 1.4250
Support....: 1.2850 ... 1.2700 ... 1.2500 ... 1.2140
The Swiss Franc has a complex group of cycles and half cycles that make reading quite complex. However, we see two groups both rising at the moment with both two shorter and two longer cycles rising. Thus we are looking for a strong movement higher which should last between 2-3 weeks at least.
With the recovery from 1.2700 which we see as important to a stronger view, we feel the coming month should be mostly one-way traffic with initial targets at 1.3475 and 1.3610 although we feel the move could be stronger and look to move above 1.4000. The next natural target will then be at the 1.4276 corrective high.
Resistance: 1.7755 ... 1.7790 ... 1.7800 ... 1.7840
Support....: 1.7710 ... 1.7685 ... 1.7655 ... 1.7620
Mixed - waiting for breaks
The rally through to 1.7800 yesterday was stronger than expected and alters our short term view. While support at 1.7685 holds and a recovery is made above 1.7755 there would appear to be a risk of a further test at 1.7800 with breach implying gains extending to 1.7855 at least and possibly 1.7910-30.
While the recovery to 1.7800 was stronger than expected we can see arguments to suggest this was a peak. However, we would prefer to have this confirmed which would come on a break of 1.7685 and then 1.7655. Should these supports yield then we feel the liklihood is for further losses back down to the 1.7530-65 lows. Any aggressive move breaking this previous low would imply follow-through to 1.7475 and 1.7400.
Resistance: 1.7800 ... 1.7855 ... 1.7930 ... 1.8056
Support....: 1.7655 ... 1.7565 ... 1.7475 ... 1.727
The Pound was stronger than expected and broke above the 4-hour Pivot Cloud and raises risk of further gains. Schaff Trend Cycle recovered and is approaching 100 while FXS-RSI has recoved into neutral territory. Although disappointed by the extent of the recovery we still feel this tends to suggest a more bearish medium term scenario.
The move back to 1.7800 has reached key pivot resistance and could be considered a candidate for a key peak. However, any break above 1.7800 would imply follow-through to 1.7855 and 1.7930 at least. Any move above the latter would imply gains all the way back to the 1.8056-80 area in a larger flat correction.
Although the move to 1.7800 was not expected we still feel the downside is the more favored. However, to prevent further tests higher we need to see loss of 1.7655-85 and then the 1.7565 corrective low. Once seen we can expect follow-through towards 1.7475 and 1.7275 at least.
Elliott Wave Comment:
With the drop below 1.7650 the structure now favors a direct decline and the move to 1.7531 looks to have completed an internal Wave (iii) and while price remains below 1.7655-95 we feel this implies further losses towards 1.7295 at least. From the wave count of one higher degree we see targets for Wave [c] also at 1.7030.
(Updated 10th May)
Resistance: 1.8056 ... 1.8295 ... 1.8465 ... 1.8605
Support....: 1.7660 ... 1.7505 ... 1.7030 ... 1.6895
The daily cycles are mixed with the larger blue cycle now declining but with the shorter cycles suggesting potential for a rise. At the very least we suspect this will translate into some rather whippy and erratic moves. We therefore need to measure these along with breaks of key support/resistance in the price chart. This choppy behavior, if seen could last for up to 2-3 weeks.
Overall we feel the larger risk for the coming month or two is lower. However we would prefer to wait for breaks of support to confirm this bearish view. Ahead of this we still need to acknowledge the risk of a move up to 1.8145-80 and possibly 1.8295 before the larger bearish influence can take hold. Once the move takes hold we would look for a move down to the 1.70 area at least.
(c) FX-Strategy Inc 2004
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