Weekly Technical Update: Risk Aversion Boosts USD and JPY

Risk aversion took over and the USD and JPY benefited. This week's action is significant as it reflects breakouts and adjustments to previous outlooks. Let's take a step back an take a look a the big picture for the currency markets.

EUR/USD: Alternate Wave Counts - Big Picture

Weekly and Monthly: The EUR/USD is declining past the swing projection, strengthening the bearish outlook further. The decline past 1.37 invalidates previous week's wave count..

Count 1: One count refers to the 2008-2009 decline as ABC correction, and the 2009 rally as wave I, while the late 2009-early 2010 decline as wave II. The current leg of decline could be wave “c”.

Price action at the moment suggests the decline eyes the 1.30 area (78.6% retracement). The first target is the 1.34/35 area, which the market looks poised to meet in the coming week.

Count 2: If it doesn't the market may be developing a bullish gartley at the 61.8% retracement area - 1.13. This retracement pattern, may be the the complete ABC correction after a terminate wave V.

The stochastic in the weekly suggests further bearish continuation, while the monthly momentum reflects the sharp reversal of the past couple of months.

In any case the 1.30 area is the next major area of support, and the market looks poised to reach this level.

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GBP/USD: Retracement Projection; Wave Counts

Weekly: The break below 1.57 spells further weakness. The market meets a large swing projection to the 1.55 area, though it may continue to 1.53 - 50% retracement support.

Wave counts I-II-III seems established, but we are either in correction after a truncated wave V OR we are in the middle of wave IV.

If the market stays above 1.48/1.50 (end of wave I), the second scenario is valid.

Otherwise, we have already finished a bullish cycle, and a bearish cycle may have already started.

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USD/JPY: 3-Wave Retracement

Daily: The USD/JPY dropped more than 200 pips yesterday and now tests the 78.6% retracement level - near 88.80. This was the original projection, though the market appeared to have began reversal near the 61.8% retracement area - 89.80.

Once again, price action is very bearish so be cautious. If the market bottoms here, the stochastic would show a bullish divergence, suggesting this 3rd wave in the recent retracement decline is an exhaustion move.

This 3-wave move is not an impulse wave, so the bullish outlook is still valid. In the near-term however, the market remains bearish, so strong confirmation will be needed to establish a reversal to the bullish outlook.

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USD/CAD: 1.11/1.10 Projection

Weekly and Daily: The 1.1 area is still a viable target for the recent rally, although the market paused around the 1.0750 area this week.

The daily chart shows a possible exhaustion move, which may lead to a short-term decline.

Looking at the weekly, we see that if a rally follows this retracement, and breaks 1.0/1.1, we have a double bottom.

In the short-term anticipate a minor correction decline and a subsequent push towards 1.0/1.1. If the breaks, the bullish outlook goes into the intermediate time-frame, eyeing 1.14.

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EUR/GBP Stalking Consolidation

Daily and 4H: The EUR/GBP didn't see much development in terms of developing a bullish or bearish outlook this week. was maintained in a narrow range testing channel resistance (4H).

The market is basically in consolidation after the downswing from mid-Jan to Feb.

Last week's projection is still valid. This is a pullback projection to the 0.8950 area.

In the 4H time-frame, you can see an alternate scenario where the market comes down to the 0.8650 and than heads to 0.8800 area.

In any case, the anticipation is for a rally in the short-intermediate term toward 0.88/0.8850. Then if topping action occurs, the bearish outlook is further confirmed.

Weekly: The weekly shows that the market is testing the 78.6% retracement area, so there is bullish expectations here. However, if the market continues declining, the 100% retracement - 0.84 area is the next support, or a projection from a decline after pullback.

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GBP/JPY: Adjusting Outlook

Daily: A break below 144.50 continues bearish case towards 139.50. A break above 147.35 suggests a swing projection (in Daily) to the 152.50/153 area. This was last week's anticipation.

The market broke below 144.50 with force and is declining past the 139.50 support. The break signifies intermediate bearish outlook.

Weekly: We see the intermediate projection in the weekly chart, showing a decline to the 78.6% retracement near the 128.00 area. This is also a swing projection.

Like with many breakouts this week, there may be a pullback, but don't expect a major one.

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http://www.actionforex.com/technical-analysis/weekly-forex-technicals/weekly-technical-update%3a-risk-aversion-boosts-usd-and-jpy-20100206106172/