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Sunday May 16, 2004 - 21:15:51 GMT
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Forecast for Forex Majors 17th May 2004

General Market Conditions

Our view of a stalling in the Dollar's strength looks to be correct although there could still be some minor strength against the Europeans today. Overall we feel that this week could see some choppy weakness all round. Today we need to exercise some caution since we do still see one scenario calling for a brief spike higher in the Dollar against the Euro and probably Swissie too but overall we still look for the Dollar to re-visit 1.1940 Euro, 1.2875 Swissie and 1.7800 British Pound. Once we have seen this test lower again we feel the underlying Dollar uptrend can resume. Against the Japanese Yen Friday saw a marginal new high at 114.85, just 5 points from the ideal 114.90 target for this part of the rally. We doubt that we shall see a new high here but will look for the Dollar to fall away to 113.40 and the 112.80-00 over today & tomorrow after which a correction can ensue. However, overall we feel the bias is now in favor of a move to 112.50 and probably 111.10-60. Have a profitable week.

Price: 114.20

Day View
Resistance: 114.45 ... 114.65 ... 114.85 ... 115.10
Support....: 114.10 ... 113.95 ... 113.75 ... 113.40

Bias: Bearish to 113.40 initially - possibly all the way to 112.80-00

Bullish: Friday did see a recovery from the early dip to 114.20 but having almost met the ideal 114.90 target we are more inclined to the bearish side. However, in early trading we feel there is a good chance of a pullback from the 114.10 area that could move as high as 114.45-50 but this should contain any strength. Thus only above 114.65 would threaten 114.85 once again and allow a deeper test of 114.90-115.10 but we still see this area holding if seen.

Bearish: Friday's high at 114.85 satisfied this target are pretty strong. Thus we feel that while early trading may see a rebound to 114.45-50 we look for this to hold and for the next move to be lower to 113.40 where a small pullback can take hold. However, while this pullback holds below 113.90-114.10 the target for the first decline will be in the 112.80-00 area. Further support is seen at 112.50.

Week View
Resistance: 115.10 ... 115.60 ... 116.05 ... 116.90
Support....: 113.40 ... 112.80 ... 111.60 ... 111.10

The test higher above the 4-hour Pivot Cloud reached a little further to 114.85, just 5 points away from the ideal target and we feel this ends the current rally. Schaff TC is now high but starting to decline while the bearish divergence in FXS-RSI has deepened and will be confirmed on a break below the Cloud. Thus we look for the first part of the corrective pullback to reach 112.80-00 (support also at 112.50) which should provoke a pullback. The eventual target should be around 111.10-60 but could take a while longer.

Bullish: We take Friday's peak at 114.85 to be the top of the current rally. The only scenario we can see that could alter this is a direct test back to 114.85-115.10 with any breach causing gains to follow-through to 115.60 and possibly 116.05. Further resistance is found at 116.90. However, with the major pivot resistance around 115.00-50 we find this possibility holds slim odds.

Bearish: The first signs of a deeper pullback have occurred with an outside reversal bar in the 8-hour chart from 5 points short of the ideal 114.90 target (see the Elliott Wave chart). However, there is still a little further to go to confirm this reversal and we feel this should occur today & tomorrow with a decline down to 113.40 and then 112.80-00. (Further support at 112.50) This decline should spurn a pullback that can rally back to 114.10-30. However, further out we look for the move lower to test 111.10-60.

Elliott Wave Comment:

The test of 114.85 this morning has satisfied 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 111.10-60 before Wave [v] can begin.

Month View
(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.

Price: 1.1880

Day View
Resistance: 1.1900 ... 1.1920 ... 1.1940 ... 1.1985
Support....: 1.1860 ... 1.1840 ... 1.1805 ... 1.1770

Bias: Bearish to 1.1730 but wait for break to confirm

Bullish: Our caution about looking for strong losses on Friday proved correct and we remain with this caution. However, with the peak at 1.1900 on Friday we feel the bias may well be lower today. Thus, to generate a more bullish move we need support at 1.1840 to hold and for a break above 1.1900 to take us back to 1.1940. However, if seen this area should cap and cause a resumption of the downtrend.

Bearish: The 1.1770 area held on Friday and price rallied all the way back to 1.1900. This looks more like a corrective move higher within a complex correction and thus while 1.1900 holds and break is seen below 1.1840 we feel the slightly stronger risk is for a move down to 1.1730. However, if seen we feel this will hold and generate a pullback higher once again.

Week View
Resistance: 1.1900 ... 1.1940 ... 1.2020 ... 1.2140
Support....: 1.1770 ... 1.1730 ... 1.1665 ... 1.1545

Price failed to renew the move below the 4-hour Pivot Cloud and rallied to just above the Cloud but without a clean break. Schaff TC1 has remained at 100 while FXS-RSI displays a potential bullish divergence but we require a clear break above 1.1940 to confirm this. We retain a medium term bearish stance but do see risk of a period of sideways consolidation before the downside can take hold - with daily cycles suggesting room for losses through to the end of next week at least.

Bullish: Our view of a complex correction in a larger downtrend remains. We feel that any direct decline from 1.1900 today could reach 1.1730 which should provide a buying opportunity for a rally back to 1.1940. We look for the 1.1940 area to cap for the downtrend to resume. Otherwise a clean break of 1.1940-85 is required to generate a stronger move higher. If seen the implication would be for follow-through to 1.2020 and possibly 1.2180 once again.

Bearish: The short term picture is still mixed and seems to imply some choppy price action before the underlying downtrend can resume. Today should clear up the structure with a direct break below 1.1840 implying a dip to 1.1730 before a recovery back to 1.1940. Alternatively an early rally today directly back to 1.1940 would complete the correction and allow the downtrend to resume. Either way we expect the 1.1940 level to be retested. Direct break below 1.1700-30 will confirm follow-through to 1.1545 and 1.1305-10.

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.

Month View
(Updated 10th May)
Resistance: 1.2180 ... 1.2485 ... 1.2930 ... 1.3180
Support....: 1.1310 ... 1.1160 ... 1.0760 ... 1.0500

Daily Cycles:

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.

General Outlook:

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.

Price: 1.2960

Day View
Resistance: 1.2980 ... 1.3015 ... 1.3040 ... 1.3060
Support....: 1.2945 ... 1.2905 ... 1.2880 ... 1.2850

Bias: Higher to 1.3145-65 but waiting for confirmation

Bullish: The caution held about the rally against the Swiss Franc still looks to be correct. There is a little ambiguity about the structure right now but we have a mild bias in favor of support at 1.2935-45 holding and with a break above 1.2980 then 1.3015 we would look for a move back to 1.3085 once again at the very least. Above here would suggest follow-through to 1.3145-65 which we feel would cap for a more sustainable pullback. Any loss of 1.2930 would suggest a direct loss down to 1.2850-80 which we feel would provide an excellent buying opportunity.

Bearish: Friday's losses took price down to 1.2933. We feel this has a good chance of holding and if the bullish preference is correct we feel the better selling opportunity will be at 1.3145-65. However, any direct loss of 1.2930-33 would imply an immediate follow-through to the 1.2880 area with further support at 1.2850. However, this area is expected to hold any losses. Further support is at 1.2790.

Week View
Resistance: 1.3085 ... 1.3165 ... 1.3225 ... 1.3400
Support....: 1.2930 ... 1.2850 ... 1.2790 ... 1.2755

Friday saw price trade in a range around the 4-hour Pivot Cloud and failing to move above 1.3085. Schaff Trend Cycle is now high but beginning to decline while FXS-RSI continues to languish 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. Either way we do expect the 1.2850-75 area to be tested a second time.

Bullish: The shorter term price structure is a little ambiguous but we do feel that either way the 1.2850-80 area should be tested once again and provide a good buying opportunity for a move to 1.3475-95. Today should provide the answer to whether it is seen directly or whether a move through to 1.3145-65 is seen first - we suspect it will. Thus only on a bounce of 1.2880 or a direct break of 1.3165 do we feel more confidence in suggesting buying here.

Bearish: The underlying direction is still higher and therefore we see little selling opportunities. Should today see 1.2930 hold and a move up to 1.3145-65 is seen we feel this should provide an opportunity to sell to take advantage of a pullback to 1.2850-80 once again. Otherwise, only a direct loss of 1.2850-75 would trigger losses all the way back to 1.2665 at least which would be the target implied by the confirmed double top at 1.3085.

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.

Month View
(Updated 10th May)
Resistance: 1.3235 ... 1.3475 ... 1.3610 ... 1.4250
Support....: 1.2850 ... 1.2700 ... 1.2500 ... 1.2140

Daily Cycles:

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.

General Outlook:

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.

Price: 1.7595

Day View
Resistance: 1.7620 ... 1.7643 ... 1.7665 ... 1.7715
Support....: 1.7565 ... 1.7545 ... 1.7525 ... 1.7490

Bias: Cautiously higher

Bullish: The rally from 1.7450 encourages the view of a move back to test 1.7800. Within this rally we appear to have seen the initial rally to 1.7643 and this should allow a pullback to around 1.7525-45 (minor risk of 1.7490). We feel this lower support area should provide a good buying opportunity for a move back higher again. Above 1.7620-45 would allow a move back to 1.7715 where a further pullback is possible. Above 1.7715 suggests potential for a direct move towards 1.7765 and 1.7800.

Bearish: Having seen the bounce from the 1.7450 level we feel the medium term downside needs to wait a little more. However, initial trading today should make its way back down to the 1.7825-45 area at least with some risk of seeing 1.7490. However, only below here would generate follow-through back down to 1.7410-30 but which we feel would hold if seen. Break implies direct losses to 1.7275 at least.

Week View
Resistance: 1.7715 ... 1.7810 ... 1.7870 ... 1.8056
Support....: 1.7525 ... 1.7430 ... 1.7275 ... 1.7160

Friday saw losses down to the support at 1.7430-65 from where we have seen a rally back to the 4-hour Pivot Cloud. Schaff Trend Cycle is low but beginning to rise while FXS-RSI appears to be forming a possible bullish divergence. The bearish medium term scenario is still favored but we feel a move back to 1.7800 is needed before the downtrend can resume.

Bullish: One of the scenarios onFriday was a move down to 1.7430-65 from where we anticipated a rally back to 1.7800 in a complex correction from the 1.7530 low. We feel that this is now most likely and feel that a short term buying opportunity has arisen but any long positions should be squared and profit taken by around 1.7750-60. Thus only above 1.7800-20 would provoke direct follow-through in a rally back to the 1.8056 high.

Bearish: The medium term bearish view remains but given the recovery from Friday's low at 1.7450 we feel we need to wait a little longer for the downtrend to resume. In fact we consider the 1.7765-00 area an excellent selling opportunity for the next stage of the move lower which should prove quite strong. Break of 1.7430 would imply losses to 1.7275 minimum and we suspect all the way down to 1.7075 at least.

Elliott Wave Comment:

The development in price over the past few days suggests that we are seeing an expanded flat correction from the 1.7530 low within which the irregular Wave b occurred at 1.7450 on Friday. This would imply a move back to the 1.7800-20 area to complete Wave c (and therefore Wave [ii]) from where we anticipate the Wave [iii] beginning and which has a minimum target at 1.7275 but a more likely target around 1.7075.

Month View
(Updated 10th May)
Resistance: 1.8056 ... 1.8295 ... 1.8465 ... 1.8605
Support....: 1.7660 ... 1.7505 ... 1.7030 ... 1.6895

Daily Cycles:

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.

General Outlook:

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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