EWF Weekly overview 6.2.2012

Weekend Update

6.2.2012 9.01 PM EST

US Dollar Group: We are still seeing more USDX strength but expecting a 3 wave recovery first which could reach as low as 82.21 before the uptrend resumes. Sharp EURUSD rally from 1.2280 suggests that a cycle has completed and a 3 wave recovery for wave ((x)) is now underway. A test of 1.2340 can’t be ruled out to complete the interim correction before the pair rallies toward 1.2532 (measured move objective) or 1.2574 (1.236 ext). Failure between these levels will leave the pair vulnerable to weakness and drop to new lows would be expected. GBPUSD remains one of the weakest pairs and wave 3 appears to have completed and a bounce toward 1.5500 – 1.5550 appears to be on the cards to compelte wave 4 before the downtrend resumes. USDCHF appears to have completed a cycle and a 3 wave pullback is now expected which could reach as low as 0.9577 before the uptrend resumes. Wave (b) of the correction could already be over but a rally to 0.9720 – 0.9730 can’t be ruled out to complete a FLAT (b) wave before wave (c) lower toward measured move objective (0.9577). This should be enough to complete the correction and uptrend should then resume.

Yen Crosses: We are expecting some further weakness in USDJPY toward 76.50 – 77.00 is expected to complete a cycle from 80.54. Resistance between 78.50 – 79.00 must hold on a daily closing basis for this scenario to play out. EURJPY has completed wave 3 and a 3 wave recovery in wave 4 is now expected which could reach as high as 0.9800 – 0.9850 before lower again. AUDJPY 5w decline from 78.64 has completed and a 3 wave recovery in wave 4 is now expected toward 77.00 – 77.50 before downtrend resumes.

Euro Crosses: EURAUD: Following a 3 wave decline ((a)) to 1.2683 we believe wave ((b)) is unfolding as a FLAT and could reach as high as 1.2889 before finding a peak. Back test of broken trend line (Ref: H4 chart) should ideally reject the price for wave ((c)) down. Shorter cycles in EURGBP suggest wave IV is unfolding as a FLAT. Measured move objective lies @ 0.8124. Expect strong resistance between 0.8124 – 0.8150 and failure between these levels will leave the pair vulnerable to weakness. Drop to new lows would then be expected.

FX Commodities: AUDUSD 5 wave decline 0.9885 suggests either wave 3 has completed with spike to 0.9580 and wave 4 correction is underway which could reach as high as 0.9800 – 0.9885 before lower again. ALT view (show at the top) suggests that 5 wave decline from 0.9885 – 0.9580 only completed wave (i) of ((v)) of 3 and rally to 61.8 fib (0.9777) would complete wave (ii) of ((v)) before the pair resumes the downtrend. NZDUSD 5 wave decline to 0.7450 completed either wave (i) of (5) or a FLAT ((B)) wave. If wave (4) has completed @ 0.7648, expect corrective rallies to be capped between 0.7600 – 0.7612 for resumption of the downtrend and if a FLAT is playing out, expect a test of 0.7700 before downtrend resumes. While above 1.0350, there is scope for USDCAD to make a new high to about 1.0460 – 1.0500 before a 3 wave pullback to 1.0250 – 1.0300.

Commodities & Indices: $FTSE broke to new lows on Friday in line with our primary view. Any rallies should now prove corrective and remain capped below 5307 for next leg down. Only above 5354 would mean we have seen a false break and a retest of 5420 – 5440 zone would become likely before the downtrend resumes. Following a ((b)) wave triangle consolidation, $DAX has broken to the downside and w.iii of (iii) completed @ 6007. 2 new lows are now expected to complete a 5 wave decline from triangle completion point. Expect a test of 5900. Trend is down in $SPX500 and our strategy remains “selling the rallies” for a move down toward our long awaited target of 1250. Only above 1319 delays next leg of the downtrend. Gold rallied sharply after a spike test of 1530 and reached 1630 on Friday. We believe this completed wave (iii) of ((c)). A pullback in wave (iv) is now expected which should ideally find support between 1597 – 1610 before the rally resumes to ((c)) = 1.618 x ((a)) target of 1.648. This should complete a FLAT correction for wave X and downtrend should then resume for new lows below 1526. Only above 1671 and more importantly 1680 negates this outlook.

Trade Safe & Good Luck

Daud Bhatti

ElliottWave Forecast Editorial Team

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