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Wednesday May 12, 2004 - 01:45:54 GMT
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Forecast for FX Majors May 12th 2004

General Market Conditions

A mixed bag yesterday with some marginal gains for the Dollar against the Euro and Swissie, quite steady gains against the British Pound but losses against the Japanese Yen. It therefore tends to suggest the alternate view of an initial pullback in the larger Dollar rally is now under way. We are a little uncertain on how long this will last, but we would suspect only a day or two and by Friday or Monday we should start seeing further strength. General areas where we see the pullback stalling are at 1.1950-85 Euro, 1.2850-80 Swissie, 1.7655-95 Pound and finally around 112.45-60 Japanese Yen.


USDJPY
Price: 113.05

Day View
Resistance: 113.20 ... 113.45 ... 113.85 ... 114.13
Support....: 112.85 ... 112.60 ... 112.45 ... 112.25

Bias: Down to 112.45-60 before recovering

Bullish: No break above 114.13 but a decline that broke below 113.30 which has triggered a longer downward correction. We can only get bullish gain should resistance at 113.20 and then 113.40-50 break. Only then would we look for a return to 113.85 and possibly a direct test of 114.13 again. Further resistance is at 114.65-90.

Bearish: The break of 113.30 signaled further weakness yesterday and this has tested the 112.85 support thus far. We feel that it is more likely to see 113.20-40 hold and allow losses to follow-through to 112.60 at least and we feel 112.45 a favored target. We feel this should form a base but allowance should be given for a dip to 112.15-25. Only below here gives a stronger bearish bias.



Week View
Resistance: 113.50 ... 114.13 ... 114.90 ... 116.05
Support....: 112.20 ... 111.90 ... 111.20 ... 110.50

Break of 113.30 has allowed a deeper test of the 4-hour Pivot Cloud and suggests a minor pullback in the overall uptrend. Schaff TC is now declining while FXS-RSI has dipped below overbought but is neutral. We retain the weekly target at 114.90-00 which should occur from the 112.45-60 area. We shoudl allow for minor breach of the ideal 115.00 target.

Yesterday's comments continue to apply:

Bullish: It certainly seems that the two Fibonacci targets at 114.90-00 will be seen soon. The only possible alternative we see is a slower rally with an initial pullback to 112.45-90 but while this support area holds the target remains intact. Although not expected, and move above 115.00 would move to test the Pivot resistance around 115.30-75.

Bearish: As we move higher towards the 114.90-00 target we need to be a little cautious. It is our impression that once seen the reversal could be quite sharp back to the 112.10-60 area. Thus be aware of the possible speed of the drop. If a cautious approach is required, then wait for a break bacl below 114.00. An earlier bearish view can only be considered should 112.10-60 be broken any sooner.



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: 1.1875

Day View
Resistance: 1.1895 ... 1.1935 ... 1.1950 ... 1.1985
Support....: 1.1855 ... 1.1840 ... 1.1810 ... 1.1787

Bias: Initial decline to 1.1840-55 but then higher

Bullish: With the dip to a marginal new low and the recovery since we feel the emphasis has changed to a more bullish note. However, first thing today we feel thata dip to the 1.1840-50 area is possible. Thus on a bounce from here and a move back above 1.1880 we look for gains to reach 1.1935 at least and possibly 1.1950. Further resistance is at 1.1985.

Bearish: Although losses were seen yesterday these held above the 1.1760 low and suggests the downside fell short of target. Thus we are reluctant to take a bearish stance today although we feel teh first move should be lower towards 1.1840-55. Thus only below 1.1840 would reverse the picture once again and cause a retest of the 1.1760-80 lows and break would provoke follow-through to 1.1705 and 1.1660.



Week View
Resistance: 1.1935 ... 1.1985 ... 1.2030 ... 1.2085
Support....: 1.1760 ... 1.1705 ... 1.1660 ... 1.1550

While price made further losses below the 4-hour Pivot Cloud these were not accompanied by strong momentum. However, Schaff TC1 remained at zero while FXS-RSI has begin to recover. Having failed to break below the 1.1760-80 area first we feel there is a risk of a pullback towards 1.1950-85 before the larger downtrend can resume.


Bullish: Having seen the 1.1760-80 area provide support we feel there may be a day or two of corrective price action. However, this may not be too deep and we favor 1.1840 holding and allowing a drift higher towards 1.1935-50 which may hold the entire correction. However, we acknowledge further resistance at 1.1985 and 1.2030.

Bearish: The bearish stance is still favored but with the bounce from 1.1760-80 we feel there is a risk of a corerction up to 1.1950-85 before the downtrend can continue. An earlier break of the 1.1760-80 area will confirm weakness with the next target at 1.1505-50 at least and we suspect much lower towards 1.1310.



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.




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: 1.2980 ... 1.3010 ... 1.3035 ... 1.3060
Support....: 1.2940 ... 1.2915 ... 1.2895 ... 1.2880

Bias: Pullback to continue towards 1.2850-80

Bullish: The view of an additional high was correct although it didn't even reach our conservative target at 1.3095. Thus we are not bullish on the day and we can only re-assess should resistance at 1.3035-60 be broken. If seen then we would look for (probably) strong gains above 1.3085 and through to 1.3225 on the day.

Bearish: The reversal from 1.3085 gives a bearish feel for the day and this should mean that we see price remain below 1.2980 (max 1.3010) and see losses conitnue below 1.2940 towards the key support at 1.2850-80. We feel this lower area will hold and form a base for a further rally. Break of 1.2850 signals 1.2790.



Week View
Resistance: 1.3060 ... 1.3110 ... 1.3225 ... 1.3395
Support....: 1.2850 ... 1.2790 ... 1.2755 ... 1.2700

Further marginal gains were made above the 4-hour Pivot Cloud but without much momentum and has caused a pullback to the Cloud and just below. Schaff Trend Cycle is now declining while FXS-RSI has continued its dip from overbought territory. We retain our bullish stance but recognise the slowness of this move and feel that a correction is likely before further gains can be made.

Bullish:
Yesterday's comments continue to apply:
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 1.2885-1.2925 support continues to hold the structure will imply much stronger gains to 1.3475 at least with next resistance at 1.3610 quite possible.

Bearish:
Yesterday's comments continue to apply:
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 1.2845. However, only below the latter would begin to put doubt on the bullish view. Next support is at 1.2790 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: 1.7610

Day View
Resistance: 1.7630 ... 1.7655 ... 1.7675 ... 1.7695
Support....: 1.7580 ... 1.7555 ... 1.7530 ... 1.7495

Bias: Correcting back to 1.7655-95 today

Bullish: The loss of 1.7650 surprised and gives an overall bearish feel. However, with the bounce from 1.7530 we feel there is room for a correction before the next move lower. Thus we look for 1.7555-80 to support and allow the pullback to continue towards 1.7655 minimum and possibly as high as 1.7695. This should hold if seen.

Bearish: The breach of 1.7650 provoked follow-through not only to 1.7560 but to 1.7530. However, we feel we are due a pullback and thus the downside may be limited today. We feel selling opportunities will come between 1.7655-95 or on a direct break below 1.7550. If seen then look for follow-through towards 1.7435 and 1.7370.



Week View
Resistance: 1.7655 ... 1.7695 ... 1.7775 ... 1.7815
Support....: 1.7530 ... 1.7435 ... 1.7370 ... 1.7295

Price unexpectedly continued its decline below the 4-hour Pivot Cloud to the 1.7530 level. Schaff Trend Cycle has remained at zero while FXS-RSI also reached zero but has just blipped higher. It would seem this implies a direct resumption of the downtrend and should allow a move to 1.7275 at least.

Bullish: With the break of 1.7650 and also of the prior low at 1.7579 we cannot get too bullish at this point. Only a move back above 1.7695 and 1.7775 would reverse this picture and call for a move as high as 1.7855 and possibly above 1.7900.

Bearish: With yesterday's test of 1.7530 we feel the downside is under focus and while the current pullback remains below 1.7655-95 there appears to be a stronger argument for conitnuation of the decline to 1.7275 at least and possibly lower. Next support is at 1.7030.



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.




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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