Currency Notes

By: Sitka Pacific | Mon, Aug 30, 2004
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Updated August 29, 2004

Long-Term Trend: Months
Intermediate-Term Trend: Weeks
Short-Term Trend: Days

US Dollar Index

Long-Term Trend: Up, from the February 2004 low
Intermediate-Term Trend: Up, from the July 2004 low
Short-Term Trend: Up, from the August 20 low

USD/JPY

Long-Term Trend: Up, from the March 2004 low
Intermediate-Term Trend: Unclear
Short-Term Trend: Down, from the July 28 high

Comments: The rally off the March 2004 low is on shaky ground, as the decline two weeks ago ended right on - or perhaps slightly below - the uptrend line established by the March and June lows, and last week was spend testing that trend line - which is currently between 109.50 and 109.75. The Daily MACD has turned down, and unless the Dollar recovers quickly against the Yen in the next week or so, the Long-Term Trend will clearly be down. There are short-term positive divergences that have built up as the USD/JPY has approached the uptrend line, including a potential double bottom on Friday's low, which may lift the Dollar next week. But a decline below the August 18 low at 108.95 will almost certainly convincingly break the uptrend from the March low and lead to new lows in the coming weeks.

AUD/USD

Long-Term Trend: Down, from the February 2004 high
Intermediate-Term Trend: Down, from the August 19 high
Short-Term Trend: Down, from the August 19 high

Comments: The rally from the September 2001 low to the February 2004 high traced out 5 waves, and a correction of that advance is currently underway. The first leg down traced out a clear A-B-C pattern and bottomed in June right at the 38.2% retrace of the 2001-2004 advance at 0.68. The rally from the June low is probably a wave B correction that will ultimately end with a break down to a new 2004 low - possible targets are the 50% retrace at 0.64 and the 61.8% retrace at 0.603. In the short-term, the Australian Dollar ended last week slightly below the uptrend line from the June 17 low, which makes it likely the wave B correction mentioned above is complete and Wave C down to new 2004 lows is underway. The decline at the beginning of last week was followed by a Flat correction which probably ended on Friday. A decline below 0.70 is expected early this week if in fact the correction is complete.

EUR/USD

Long-Term Trend: Down, from the February 2004 high
Intermediate-Term Trend: Down, from the June 7 high
Short-Term Trend: Down, from the June 7 high

Comments: The rally from the April-May double bottom is clearly a correction, as the rally has stopped at the 50% and then the 61.8% retrace of the February-April decline is a clearly over-lapping manner. This strongly suggests the Euro will ultimately break down to new 2004 lows before taking out the February 2004 high near 1.2930. The most likely target for that move down is near 1.12 - where two strong Fibonacci relationships exist. In the short-term, the Euro broke down in a 5 wave decline last week, which was followed by a weak correction and another break down. Friday's decline could be the start of a large wave down or the last move in this initial decline. A turn up early in the week would leave positive technical divergences on the hourly chart, but the end of the week decline also carried the Euro slightly below the uptrend line from the May 12 low, which is near 1.2040. If the Euro rallies up to 1.2100-1.2135 it will be likely that an initial decline off the high is complete and a correction will traced out for the majority of the upcoming week. Otherwise, the Euro should continue its decline this week.

GBP/USD

Long-Term Trend: Down, from the February 17 high
Intermediate-Term Trend: Down, from the June 18 high
Short-Term Trend: Down, from the August 16 high

Comments: The Pound has completed an A-B-C correction up from its low in May, and is most likely beginning the next decline from the high in February. The target for this decline is 1.7060. Short-term charts look less bearish than they did last week, but the Pound has broken below its Daily Uptrend line from August 2003 (see above chart). Based on the EW pattern a bounce is possible this week, but any bounce from here should be sold into as last weeks decline is most likely just the beginning of a trip that will take the Pound below the May 2004 low near 1.75.

USD/CAD

Long-Term Trend: Unclear
Intermediate-Term Trend: Unclear
Short-Term Trend: Unclear

Comments: The advance from the August 18 low looks more like a correction than the start of a significant rally, but there is now a clear positive divergence on the Daily chart (shown inversely on the above chart) with the recent 5 wave decline. This argues for at least a short-term decline in the Canadian Dollar. No downtrend lines have been broken yet, so the trend remains unclear.

USD/CHF

Long-Term Trend: Up, from the June 2004 low
Intermediate-Term Trend: Up, from the August 12 low
Short-Term Trend: Up, from the August 12 low

Comments: USD/CHF closed last week 2 points above the weekly downtrend line from the 2001 high, which is shown inversely on the above Weekly chart. Along with the Euro and Pound charts, this makes it highly likely that the Franc has put in a major high against the US Dollar, and that a correction of the entire move from 2001 is underway. The first Fibonacci retrace of that decline is near 1.4550, which is more than 13% above last week's close. In the short-term, it is possible that the Franc - like the Euro - has traced out a 5 wave rally from the recent low on August 12, which is supported by a possible negative divergence on the 4-hour chart, and if so we could see a corrective consolidation over the next week or two. However, it is also possible that this rally could extend, as is hinted by the Pound chart. Any pull-back from here should be limited to Fibonacci retrace levels between 1.255 and 1.267 and the weekly trend line which is currently near 1.26.


 

Sitka Pacific

Author: Sitka Pacific

Sitka Pacific Capital Management, LLC
www.sitkapacific.com
investing@sitkapacific.com

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