Currency Notes

By: Sitka Pacific | Mon, Sep 27, 2004
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Updated for the week of September 27, 2004

Suggested postitions for weekly trends:

Long Positions: USD/JPY*, USD/CAD*, USD,CHF


(*new this week)

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


Long-Term Trend: Up, from the March 2004 low
Intermediate-Term Trend: Unclear
Short-Term Trend: Up, from the September 21 low

Comments: The Yen remains in a large contracting wedge from May of this year, whose trend lines are currently near 110.80 and 109.50. Until there is a break either way, USD/JPY will continue to bounce trendlessly. A break up or down will provide a good intermediate-term trading opportunity.


Long-Term Trend: Down, from the February 2004 high
Intermediate-Term Trend: Down, from the August 19 high
Short-Term Trend: Up, from the September 8 low at 0.6853

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. The short-term trend is now up from the recent low, and the current leg up is probably a wave C of an A-B-C Wave B correction from the June 6 low at 0.6775. Probable targets are the 50% retrace at 0.7399 and the 61.8% retrace 0.7543. However, if the dollar rally resumes against the Euro zone and break up against the Yen, caution should be exercised in a long AUD/USD position.


Long-Term Trend: Down, from the February 2004 high
Intermediate-Term Trend: Down, from the June 7 high
Short-Term Trend: Down, from the September 23 high 1.2362

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 has been retesting its broken weekly trendline in a clearly corrective rally for the past 5 weeks from the August 29 low at 1.1987, and will most likely end in a decline below 1.1987. The high on Friday at 1.2362 was followed by a steep reversal that declined below the low made on the Thursday, and this may have marked the end of wave C of that correction. With the broken trendline on the weekly chart and the recent overlapping advance, all indications suggest the Euro is about to begin a significant decline against the dollar, and those trading weekly charts should be entering short here.


Long-Term Trend: Down, from the February 17 high
Intermediate-Term Trend: Down, from the June 18 high
Short-Term Trend: Down, from the September 23 high at 1.8087

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). In the short-term, the Pound has traced out a rising wedge from the September 14 low at 1.7740. This is likely wave C of the correction from the September 6 low at 1.7709. The spike up on Friday stopped right at the 50% retrace of the August-September decline at 1.8088, and the reversal that followed likely was the start of a short-term move down that will continue next week. The lower trendline of the rising wedge is now at 1.7950, and a break below that area would be a strong indication that a decline that will break below the 1.7707 area has begun.


Long-Term Trend: Unclear
Intermediate-Term Trend: Unclear
Short-Term Trend: Down with a break of 1.2840

Comments: The Canadian dollar continued to rally this last week, and the short-term trend remains down. But there are reasons to look for a reversal fairly soon, so a suggested long position was added to the list at the top of the page. This is based on support on the Daily chart, a complete-looking 5 wave decline from the May 17 high at 1.4003, and the fact that the short-term hourly charts look exhausted on the downside. The decline from September 17 high at 1.3053 could reverse at any time; the downtrend line is currently at 1.2780, and a break above that line should start a significant correction upwards. However, those playing weekly charts should begin to build a long position from current levels.


Long-Term Trend: Up, from the July 12 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 right above the weekly downtrend line from the 2001 high, which is shown inversely on the above Weekly chart. 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. From the August 16 low, there is now a clear 5 wave rally that has been followed by a corrective-looking decline to the low at 1.2521 on Monday. It is possible that Monday's low was the end of a correction from the August 29 high near 1.2820, but here is also room for additional marginal new lows in the next week. But for those who trade long-term trends on Daily and Weekly charts, this is the time and place to enter long, even though in the short-term there could be a move slightly below Monday's low in the coming days.


Sitka Pacific

Author: Sitka Pacific

Sitka Pacific Capital Management, LLC

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