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Sunday May 9, 2004 - 14:17:24 GMT
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Forecast for Forex Majors 10th May 2004

General Market Conditions

The expectation of quiet end-week trading couldn't have been more wrong... The sharp spike lower for the Dollar was equally violently reversed and led to a sustained rally for the Dollar. With daily cycles now confirmed as higher we see further gains over the week which could be quite strong. However, for today we need to exercise some caution. The rally was exceptionally sharp and did not leave too many clues as to the next move or provide Fibonacci targets. Thus we observe how price develops over the next day to begin to understand the structure. We do see natural stalling points that should restrict further gains today, these being around 112.65-113.10 Japanese Yen, 1.1760-1.1805 Euro, 1.3075-1.3100 Swissie and 1.7785-95 British Pound. This could lead to a correction but we need to see how deep this will be but our suspicion is that pullbacks could be quite shallow. We shall look to trade on breaks today. Have a profitable week.


USDJPY
Price: 112.20

Day View
Resistance: 112.47 ... 112.65 ... 112.90 ... 113.10
Support....: 112.10 ... 111.90 ... 111.55 ... 111.00

Bias: Price range to span Friday's peak at 112.47

Bullish: The 112.40-50 area appears to be a key temporary resistance area and indeed we are seeing a correction develop. Two support areas are implied at 111.90 and 111.55 and we feel that the 111.90 level is more likely to hold. This should spurn a rally to 112.65 at the very least and possibly 113.10 but we feel this area is likely to cause a second pullback. Above 113.10 provides a lift to 113.90.

Bearish: Having identified 112.40-50 as a stalling point we need to assess how ling this might hold and how deep the pullback might extend. First support is at 111.90 and we feel this may hold. However, should we see a clean breach then the next natural support is at 111.55 which should provide a stronger lift. Thus only below 111.50 would trigger a move back to 109.90-110.40 and signal the larger rally should develop more slowly.



Week View
Resistance: 113.10 ... 113.90 ... 115.00 ... 115.75
Support....: 111.55 ... 110.40 ... 109.90 ... 109.30

The move to 112.30 has been seen already and should produce a temporary pullback with a possible range of 111.90-112.65 for today but should then trigger further gains that have an initial target at 113.90 where a further pullback should occur. However, the overall structure looks positive and we look for gains to extend over time to 115.00-75 at least.

Bullish: The persistent continuation of the gains on Friday turned quite strong and we see only one possible chance for money to be made from short positions although these would be on corrections only. Resistance is at 113.90 and this could provide a pullback. From this point there is one scenario that would call for the rally to slow down with quite deep pullbacks - but we need to wait for proof of that. Otherwise, only a break below 111.55 would trigger an immediate deeper pullback with next large support between 110.40-110.75.

Bearish: The persistent continuation of the gains on Friday turned quite strong and we see only one possible chance for money to be made from short positions although these would be on corrections only. Resistance is at 113.90 and this could provide a pullback. From this point there is one scenario that would call for the rally to slow down with quite deep pullbacks - but we need to wait for proof of that. Otherwise, only a break below 111.55 would trigger an immediate deeper pullback with next large support between 110.40-110.75.



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. Should the fifth wave of Wave [c] itself develop in a diagonal triangle this could slow the upward progress.



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.



EURUSD
Price: 1.1885

Day View
Resistance: 1.1900 ... 1.1915 ... 1.1935 ... 1.1955
Support....: 1.1865 ... 1.1835 ... 1.1805 ... 1.1760

Bias: After early consolidation look for a dip to 1.1760-00

Bullish: Break of 1.2005 generated an aggressive break lower and does appear to have changed the larger structure to bearish again. Thus we do not favor a bullish stance. Early trading could develop in consolidation with support at 1.1865 and resistance areas at 1.1935 and 1.1955-75. Thus only above 1.1975 would surprise and cause a stronger move higher back to resistance at 1.2030-60.

Bearish: The sharp decline provides a bearish background and we see further losses today. There is resistance at 1.1935 and then 1.1955-75. We tend to feel the 1.1935-55 area should hold and generate a move down to the 1.1740-60 area. However, we would look for a pullback to occur from there. Any direct loss of 1.1740 would be more bearish and allow losses to extend towards 1.1505-50.



Week View
Resistance: 1.1975 ... 1.2060 ... 1.2110 ... 1.2180
Support....: 1.1805 ... 1.1740 ... 1.1505 ... 1.1310

Price has seen a sharp move below the 4-hour Pivot Cloud and has turned the larger picture bearish. Schaff TC1 has reached zero which was matched by FXS-RSI which is at extremely low levels. With bearish daily cycles we feel this could be the start of a larger decline. However this could be limited at first and take a day or two to push strongly below 1.1740-60.

Bullish: With the sharp drop from 1.2140-80 we do not favor a bullish stance. However, we do feel the initial drop could stall around 1.1740-60 and cause a brief pullback. However, this should remain below 1.1995-1.2030. Thus a more bullish view would need a move back above this area. Only then would we look for the pullback to reach 1.2110-40 once again.

Bearish: The break below 1.2000 has turned the overall structure bearish. However, we may have to wait a day or two before the next stronger decline occurs. First support is around 1.1740-60 and this could cause a pullback. However, while 1.1995-1.2030 holds we feel the next move could be again quite aggressively lower to below 1.1500.



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.




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.



USDCHF
Price: 1.3014

Day View
Resistance: 1.3030 ... 1.3055 ... 1.3075 ... 1.3100
Support....: 1.2985 ... 1.2965 ... 1.2940 ... 1.2925

Bias: After a correction look for a move to 1.3075-00

Bullish: Break of 1.2865 on Friday provoked a much stronger reaction higher than expected that reached the prior 1.3030 corrective peak. The structure is a little less clear but we feel that early trading should see the correction continue. Key support is at 1.2965 which we feel will hold although we need to acknowledge further support at 1.2925. From support we look for a rally to the 1.3075-1.3100 area which could spurn a further pullback. Further resistance is at 1.3235.

Bearish: Having seen such an aggressive rally on Friday we do not favor a bearish stance. However, we do see the probability of a dip to 1.2965 at the very least and we feel on balance this may hold. However, further support is implied at 1.2925 which would be seen if 1.2965 breaks. Thus only below the lower support would see price reverse back down to 1.2885.



Week View
Resistance: 1.3100 ... 1.3235 ... 1.3395 ... 1.3475
Support....: 1.2925 ... 1.2825 ... 1.2755 ... 1.2700

Further gains seen above the 4-hour Pivot Cloud which look bullish and should spur further gains over time. Schaff Trend Cycle is now approaching 100 while FXS-RSI has risen into high overbought territory. Our assumption of a more bullish recovery were correct though have occurred much sooner than expected. However, with daily cycles rising we will look to see price continue higher towards 1.3475 at least.

Bullish: While 1.2925-65 holds we see a move to resistance at 1.3075-1.3100 initially which may provoke a further pullback but while the 1.1885-1.2925 support continues to hold the structure wil limply much stronger gains to 1.3475 at least with next resistance at 1.3610 quite possible.

Bearish: Given the strength seen on Friday we do not favor a bearish stance except when seeing temporary pullbacks. There is support at 1.2925 and only if this breaks would we expect follow-through to 1.2885 and possibly 1.2825. However, only below the latter would begin to put doubt on the bullish view. Next support is at 1.2755 and 1.2700.



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).




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.


GBPUSD
Price: 1.7860

Day View
Resistance: 1.7885 ... 1.7910 ... 1.7940 ... 1.7965
Support....: 1.7835 ... 1.7820 ... 1.7790 ... 1.7740

Bias: Mixed - waiting for breaks

Bullish: The decline in the British Pound has been less pronounced compared to other Europeans currencies and this could well continue to be the case. Thus while 1.7835 holds there is potential for the rally to reach 1.7940 and 1.7965. However, only above here would imply further gains that could reach next resistance at 1.8010 and then retest the 1.8055 high seen on Friday.

Bearish: The reaction lower from the spike to 1.8056 does look bearish overall but we feel that a more cautious approach is called for here. There is chance of a recovery to 1.7940-65. However, after any pullback we do favor further losses and would look for the move lower to break below the pivot support at 1.7810-20 and allow losses to extend down to 1.7700 at least and possibly 1.7660 which could generate a further pullback.



Week View
Resistance: 1.7965 ... 1.8056 ... 1.8180 ... 1.8295
Support....: 1.7660 ... 1.7560 ... 1.7250 ... 1.7030

While the decline from 1.8056 on Friday broke below the 4-hour Pivot Cloud this has not been clean and does risk a move back into the Cloud. Schaff Trend Cycle has declined towards zero while FXS-RSI is now rising towards overbought territory. The reversal does suggest a bearish view but we feel the progress here may be a little slower.

Bullish: Overall we tend to be more bearish but until key support at 1.7660-1.7700 is broken we cannot rule out a surprise move higher. Thus should we see a move back above 1.7965 there would appear to be a chance of seeing follow-through to the 1.8056 area again but only break here would imply a move up to 1.8145-85. Next major resistance is at 1.8295

Bearish: On the whole we prefer a bearish view but would prefer to see key supports at 1.7660 and 1.7700 broken first. Until then the pivot support at 1.7810-20 is important and for a directly bearish stance resistance at 1.7940-65 should ideally hold. Once below 1.7660 look for follow-through to 1.7505 at least.



Elliott Wave Comment:

We are a little cautious about the count displayed but overall the structure looks bearish. However, which the cyclic conditions mixed we could see some choppy trading. If this turns out to be correct we may have to consider a new high around 1.8145-80 or 1.8295 as the corrective Wave [b]. A drop below the triangle low around 1.7660-1.7701 would signal a direct loss in Wave 1 of Wave [c].




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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