Friday May 14, 2004 - 01:54:29 GMT
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Forecast for FX Majors May 14th 2004General Market Conditions
The Dollar saw gains much as expected yesterday and on first view this morning we saw a divergence between the picture in Dollar-Yen and the Europeans. We feel that a correction in the former is now due and should be quite deep with the break seen (as we write) below 114.50 signaling a return to 114.20 which should allow a small bounce but we feel that the coming days could see this back to 112.35-45 once again. Looking at the Eurpoean group we have been basically quite bullish for the Dollar and this view is maintained but we feel the recent rally from 1.1940 Euro and 1.2875 Swissie has not looked too convincing and we feel that we should see a set back for the Dollar once again here. We shall write more in the individual analyses but we still need to be a little cautious here since there are a few potential structures that could develop. Thus we look for next week to give us a lift in the Dollar. Have a great weekend.
Resistance: 114.65 ... 114.85 ... 115.10 ... 115.35
Support....: 114.20 ... 113.65 ... 113.45 ... 112.80
As expected we have seen the Dollar rally to the minimum target at 114.65 and with several wave counts suggesting this area as a peak we tend to feel that the upside is complete. Thus we can only look for further gains should we see price move back above 114.65-70 and even then there is good resistance between 114.90-115.10 which could generate a pullback. Further resistance is at 115.35 and 116.05.
Given the various Fibonacci projections from wave counts of different degrees that place resistance between 114.65-115.10 we feel that this morning's test of the minimum target has probably signaled an end to this part of the rally. We have already seen a decline down to 114.20 and this should hold for a while but we look for a break later which should then generate further losses that should reach 113.45 and if this turns aggressive, then to 112.80.
Resistance: 115.00 ... 116.05 ... 116.85 ... 117.65
Support....: 112.80 ... 112.35 ... 110.90 ... 109.80
The test higher above the 4-hour Pivot Cloud has reached the minimum 114.65 target but this looks exhaustive. Schaff TC is rising but high while FXS-RSI is wavering just below overbought and threatens to confirm a bearish divergence. With this we feel that this section of the rally is complete and the greater risk is now for a corrective decline back to 112.35-80 and posisbly 110.90.
Minimum target seen and we feel that there is little and probably no further upside left for the moment. Thus only a move above 115.10-35 would extend gains through to 116.05 and possibly 116.85. Further resistance is at the previous highs at 117.65 and 119.77. However, with the pivot resistance around 115.00-50 we feel the upside needs to wait.
The test of 114.65 this morning meets the minimum target and this area is implied by several counts in the shorter time frame charts. Thus with the major pivot resistance at 115.00-50 we feel the greater risk is now lower and once we see a break of 114.20 we will look for the next move to 112.80 at least. This could generate a small bounce. Further support is at 112.35 and then 110.90.
Elliott Wave Comment:
The test of 114.65 this morning has saisfied the minimum target for the rally from 104.96-105.02 and we feel there is a strong chance that this has completed Wave [iii]. The ideal target is 104.90-00 but given the strong pivot resistance at 115.00-50 we feel there is a chance of falling short of the ideal target. Overall then we feel this implies that Wave [iv] should now begin and this will imply a move back to 112.80 at least and we feel to 112.35 and probably 110.90 before Wave [v] can begin.
(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: 1.1820 ... 1.1835 ... 1.1855 ... 1.1875
Support....: 1.1770 ... 1.1750 ... 1.1730 ... 1.1640
Mixed - waiting for breaks
While we have seen further downside to 1.1770 we feel the move does not quite fit with our medium term bearish outlook and therefore consider an alternative corrective structure that would provide a short term lift for price here. However, we are a little mixed and feel there is some risk of seeing a dip towards 1.1730-50 before the recovery. Thus, on a bounce from 1.1730-50 or a direct break back above 1.1820 and then 1.1855 we feel the risk will increase for a return to 1.1940-60. However, this should put a cap on price.
Although the downside has been seen to 1.1770 which is in line with our medium term bearish view, we are not too comfortable with the manner of the decline. Thus only while price remains below 1.1855 and a break is seen below 1.1730 would we consider the downside is resuming in which case we would look for price to extend lower towards 1.1640 and 1.1545.
Resistance: 1.1855 ... 1.1900 ... 1.1960 ... 1.2025
Support....: 1.1730 ... 1.1640 ... 1.1545 ... 1.1310
Price has made new lows below the 4-hour Pivot Cloud raching 1.1770 but we are cautious about the nature of the decline. Schaff TC1 has remained at 100 while FXS-RSI is now low in neutral territory. We retain a medium term bearish stance but do see risk of a period of sideways consolidation before the downside can take hold - with daly cycles suggesting room for losses through to the last week in May.
The medium term view is bearish but unless we see penetration of 1.1730 today we feel that the risk will turn over the next 1-3 days to take us back to the 1.1940-60 area. First resistance is at 1.1855 and break here confirms. However, with daily cycles pointing lower for the next two weeks we would not expect any higher than 1.1960.
Although we have seen price make a new minor low in this decline it still hasn't broken the 1.1758 low and we feel that 1.1730 is still an important level to break to confirm the downside. Only a direct break here would allow the daily cycles to take price down to 1.1545 and 1.1310 quite quickly. However, our favored view is for a return to 1.1940 before this next decline can be seen.
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.
[Addendum 14th May]
the current decline should be considered carefully with 1.1730 representing a potential expanded flat correction from 1.1787 and would imply a move back to 1.1940 before lower once again. Consider also the effect of the minor trend line drawn in the Elliott Wave chart as providing support.
(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: 1.3055 ... 1.3085 ... 1.3115 ... 1.3135
Support....: 1.3010 ... 1.2975 ... 1.2955 ... 1.2930
Mixed - waiting for breaks
Although the rally to 1.3085 once again looks constructive we feel the internal structure is more corrective in nature and thus we are cautious about expecting any further upside. There is risk of a move to 1.3135-65 but this would require a break back above 1.3055 and then 1.3085 which we feel is becoming less likely. Thus only a breach of the higher resistance at 1.3165 would trigger more aggressive gains back to 1.3225 and higher.
The rally to 1.3085 yesterday does not look impulsive and we are therefore cautiously considering a more short term bearish view. There is support at 1.3010 and if this breaks look for a mvoe through to 1.2970-80 which could generate a small pullback. However, any break of this lower area would spurn a stronger move lower that has overall potential to return to the original 1.2850-75 support area.
Resistance: 1.3085 ... 1.3165 ... 1.3225 ... 1.3395
Support....: 1.2975 ... 1.2850 ... 1.2790 ... 1.2755
Price broke back above the 4-hour Pivot Cloud finding a high at the prior peak at 1.3085. Schaff Trend Cycle is now at rising but quite high while FXS-RSI is languishing in neutral territory. While we have been bullish for the medium term and consider the low at 1.2875 as important, we feel that unless 1.3085 and 1.3165 is broken that price may see a return to 1.2850-75 once again before the medium term picture can take price higher.
While the move to 1.3085 would appear encouraging for the underlying bullish view we have found the rally from 1.2875 looking more corrective in nature. Thus we may be forced to wait a little longer before the uptrend can resume. Thus, we must allow for a return to 1.2850-75 over the next few days but will look for a rally from here to reach the next target at 1.3475-95. Any direct break above 1.3135-65 would trigger gains immediately.
Although the rally to 1.3085 may look bullish we feel there is a fairly good chance of seeing a correction first and thus while 1.3085 holds - maximum 1.3135-65 we still see risk of a return to teh 1.2850-75 support area. However, only below 1.2850 would provoke follow-through lower towrds 1.2790 and 1.2755.
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.
[Addendum 14th May]
Be aware of the possibility of a flat (or expanded flat) correction in Wave [B] back to 1.2850-75 before Wave [c] of Wave (iii) can develop.
(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: 1.7630 ... 1.7665 ... 1.7685 ... 1.7715
Support....: 1.7565 ... 1.7530 ... 1.7510 ... 1.7465
Initially higher to 1.7715 - then wait for breaks
Although the decline from 1.7800 to 1.7572 has come in five waves we have some doubts over whether this is a true resumption of the downside. However, this move should at least provoke a move back to 1.7665 at a minimum in early trading and we suspect to 1.7715. Following this we need to wait for breaks. A move back below 1.7572 would allow losses to 1.7430-65. Watch this area if seen and a bounce from here would trigger further gains back to 1.7715 at least.
The move lower from 1.7800 appears to have come in five waves and would have bearish implications. However, a move back to 1.7665 should be seen at a minimum and we suspect to 1.7715. From this peak we expect a test lower again that should break below 1.7572 and may move below the 1.7530 low also. If seen then look for losses to extend towards 1.7465 and possibly 1.7435. However, we suspect this may hold if seen.
Resistance: 1.7715 ... 1.7810 ... 1.7840 ... 1.7945
Support....: 1.7530 ... 1.7465 ... 1.7400 ... 1.7275
While price has broken marginally below the 4-hour Pivot Cloud is does not look too convincing and we are left mixed in the near term. Schaff Trend Cycle declining but approaching zero while FXS-RSI is languishing in neutral territory. The bearish medium term scenario is still favored but we need to treat the next move with a little care with ambiguous wave structures.
Price has declined to just above the 1.7565 corrective low and brings with it mixed implications. We feel there is room for short term choppiness with risk of seeing 1.7435-65 followed by a return to 1.7800 or even a direct rally. Triggers for a bullish move would be a move above first resistance at 1.7715 which would allow gains through to 1.7800-20 once again. Care here as this area may hold. However, any break would imply a move back to 1.7840 at least and possibly as high as 1.7945 and 1.8056.
The medium term bearish view remains but there is still some ambiguity about the call and with the conflicting medium term cycles we feel there may be risk of a pullback before the downside can continue. We do feel that 1.7715 should hold today and generate a new low below 1.7530 but a clean break of 1.7435 is required to force price lower towards 1.7275 and probably lower. Next implied support is at 1.7075.
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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