The GBP USD chart so far is saying that the trend is your friend and in this case the trend is up.

As long as we hold this up trendline it it must be assumed that GBP USD will trade higher in due course for the second half of this year.

Since the March 2009 lows GBP USD has had a fairly substantial rally of roughly 2500 pips.  Clearly this rally is related to the US Dollar weakness we have been seeing since the March 2009 time frame.

Right now the US Dollar undergoing somewhat of a meager attempt at an upward bounce, however I do not feel at this time that it will be a bounce or rally that has significant legs.  On the contrary I feel that the US Dollar is going to suffer another plunge that could be quite severe going into the end of this year.

If that is the case then it would support the case of GBP USD holding support on this up trendline and resuming its run north of recent resistance in the 1.6600 range.

I suspect that this development will take a month or two to develop but looks like it could be a good long play opportunity on the GBP USD.

In the mean time it is important to keep an eye on the US Dollar Index to see how much more of a bounce can materialize. As I mentioned earlier I don’t expect too many fireworks on the current US Dollar bounce, but it is something to watch closely in the next month (the degree or weakness of the bounce).

This is a developing story. More to follow.

The British Pound Canadian Dollar (GBP CAD) has been trading in a long down trending channel since about mid 2003.

This is clearly a long trading range with a downward bias to it.

The GBP CAD in the month of June showed a significant sign of strength from the bottom of this channel and so far in July has been consolidating in a pullback.

There are a couple key points to make about the GBP CAD right now. 

First, since the chart to the left is a monthly price bar chart it should be emphasized that we are dealing with long term moves here and ‘big picture’ type of trends.

Remember, there are only 12 monthly price bars in a year, so it can take a significant amount of time for these types of charts to prove themselves.

Anyway the main point from this chart of the GBP CAD is that we now have a monthly MACD bullish buy signal from the bottom of this channel.

It could be an indication that GBP CAD will now slowly attempt a move with an upward bias towards the top of this long trading channel range.

So we could be looking at a target of 2.0000 range perhaps within 6 months to 1 year on this forex pair.

We see that since 1987 the US Dollar Index has hit the 80 level 4 other separate times not including the current June July 2009 time frame.  The current test is the 5th time we are testing the 80 level.  You can see on the chart clearly the red dotted support line.  This support line is very significant because of it’s duration, and secondly because of the number of times that price has tested it. 

The rally that we saw in 2008 in the US dollar index was the result of a very large bullish monthly divergence.  It is not shown on the chart above but was clearly a very bullish indication.  So now the rally that has occurred as a result of this divergence has exhausted itself out, or has it?

Well the first indication that the rally is completely over will be a monthly price break below the 80 level.  Breaking the 80 level on the US Dollar index will open the door to a move back down to the 70 area which is not very comforting support.

But until we actually get a break below the 80 level, we must assume that the US Dollar index has some bullish tendencies and could still get a good rally going.

However a break below 80 could set off a firestorm of activity in the currency markets and the gold price as well.

So keep a close eye on the 80 level on the US Dollar Index, because we are dealing with a very important support level that goes back all the way to 1987, and can have fear reaching implications for many different markets, not to mention forex pairs.

That rally was a clear sign of strength and saw the USD SEK go from 5.9000 to 9.3000 which I think by my math comes out to roughly 3400 pips. Not too bad at all.  But since March of 2009 we do see the USD SEK in a falling down trending channel.  The entire correction since March of 2009 has done a little bit more than a 50% fibonacci retracement of the entire rally since July 2008.

Anyway, now it is consolidating sideways and perched right under this down trendline at the top part of the channel that I just mentioned.

Until USD SEK is able to break out above this down trending channel, it should be presumed that the bearish down trend remains and price weakness to resume.  However I am seeing on the weekly price chart some constructive signals developing on the MACD.  This could be the setup for a breakout above the downtrend.

Is there a good setup here?

Not really. Perhaps for a scalp trade, but this by no means what I consider a blockbuster trade setup. Just worth watching as it comes close to the channel line.  It came up in my scans as the top percent mover on July 2, 2009 and so that is why I am covering it here.

The US dollar Index itself does look ripe for a little bit of a bounce up from current levels so we might just see some interesting action to come on USD SEK. We shall see.

Maybe I will revisit this one a bit later on this month.

The EUR USD looks good to me right now for a setup of a continuation move higher soon. Since the March 2009 bottom, the Euro has had quite a constructive rally with a large sell off and then a smaller selloff to define what I would call a pretty stable uptrend.

But more than that it appears also that we may have what looks to be the makings of a cup and handle pattern in the EUR USD. The cup being almost 6 months long, and the handle being formed right now and maybe about 1 month long.  If I am correct that this is a cup and handle pattern, then we could be looking at a move coming up which could serve about 1500 pips to the upside. Certainly that would be a very nice move but is it going to happen?

The current trend is up as I have already stated so we have that on our side. Secondly, and this is going to be a lot harder to explain, there was a very important cycle date which occurred on April 20th, 2009.  You can see that the Euro declined down into that date and then turned hard in a very substantial move up.  Similarly, the US Dollar Index also hit the April 20th, 2009 Marty Armstrong cycle date and then turned down from it. 

That cycle date of April 20th, 2009 was a very important cycle date on the Marty Armstrong cycle model. I have seen his turning points be VERY precise and you can see the Euro and US dollar index reversing right on the date is once again proof how powerful his cycle model really is.

The fireworks could really start in earnest on a move in the Euro ABOVE 1.4177

The fact that prices turned on the cycle date is significant to me because it says to me that a significant change in trend has occurred and that we can expect prices to continue in the opposite direction of the direction that was occurring preceding the cycle date. So in the case of the US dollar Index, I expect us to see a hard move DOWN.  And in the case of the Euro, I expect to see a hard move UP.

I will probably post a chart tomorrow of the US dollar index because it does seem to be at a very crucial juncture right now.

This is a developing story. More to follow…

The EUR USD in my opinion is now established in a new minor uptrend.  It appears that the US Dollar Index has topped out having made a marginal new high only to fail and come back under a support area.  Indeed the weekly chart of the US Dollar looks quite bearish going forward.

So now we see in somewhat similar fashion the EUR USD having made what looks like a large double bottom with the first bottom area November 2008 and now the second bottom coming in the late February 2009 March 2009 time frame.  This looks like a valid double bottom to me with a good amount of space between the retesting action and each retesting action showing good amount of price work and consolidation.

So we have the EUR USD now attempting to succeed off of this double bottom and establish a new uptrend.  In the above chart we do see the long significant down trend line on the EUR USD which has a first touch in the July 2008 time period. Then the second touch was on the December 2008 period.  This long green down trend line represents a long area of significant resistance and challenge for the EUR USD at this time. 

I do expect that we should see the EUR USD attempt to once again test this down trend line and the behavior at that level will be KEY in determining if the EUR USD will continue longer sideways consolidation or begin the start of a much larger longer uptrend.  The challenge area comes in roughly at the 1.3400 level.  Also drawn in the EUR USD chart is a smaller blue uptrend line for near term uptrend support.  Need to maintain this blue uptrend in the near term to allow for the shorter term uptrend to resolve into the downtrend line.

Long term support is seen at 1.25000 and near term support is seen at 1.2990

If I had to guess right now I would guess that the long down trend line will be able to hold price down again and push the EUR USD into a longer consolidation.  But that is just a guess! For now we focus on the near term and  upcoming challenges in the EUR USD.

Gosh I must be crazy trying to call all these tops and bottoms.  I made a bottom picking call on the Dow Jones Industrial Average and now I am still calling for a top in the US dollar index!

Again I absolute hate trying to call tops and bottoms and who doesn’t.  It is not a very high probability business.  But sometimes if you watch markets closely enough you can make a good case for either a top or a bottom.  In this case we are looking here once again at the US dollar index chart.

This is actually the weekly US dollar index chart in candlestick formation.  What I find interesting about this chart is that once again we have what appears to be an indecision doji weekly candlestick.  A doji candlestick is something you want to watch out for when following price charts especially when they show up after a significant uptrend or downtrend.  In this case we have an uptrend in the US dollar index since the December of last year time frame.  But again keep in mind that this is a weekly chart and so the time implications are somewhat grander than daily charts.

Anyway the reason the doji is important is because it could be indicating a change in trend, in this case to the downside for the US dollar index.  The two orange arrows show where two dojis appear.  The other one that happened last year was the precursor (is that a word???) to a 4 week devastating plunge for the US Dollar Index.

We will have to see if it happens this time again.  But even if it doesn’t, a weekly decline next week for the US dollar could potentially make the statement this this new marginal high was a failure and a false break to the upside which has bearish implications going forward.

Incidentally a plunging US Dollar for the next 4 weeks would fit in perfectly with a US stock market major major bounce as I alluded to at the beginning of this post (see link at the top of this post).  It would also fit in quite nicely with a mega breakout in the gold price to new all time highs.

Looking at the US Dollar Index chart you can see that in the last few days it has managed to squeak out a new 52 week high.

However if you look closely at the nature of the price breakout, to me it does not instill a lot of confidence that this was a valid breakout.  Why? Well whenever I see breakouts I like to see a wide price spread and then a possible retest.  But this breakout looks weak at best and then today in the US Dollar Index we had quite a sharp reversal back to support.

It would definitely be very bearish in my book if we see the US dollar index close back under 87.88 and then get a weekly close under there.  Will it happen? We will just have to wait and see. But for now this looks probably to me and I do think we have at least the potential for a significant top right here.

What if I am wrong?  Well the signal that I am wrong will be that we adequately hold support here at 87.88 and then resume higher very strongly.  So that is the play right now in the US Dollar Index. Lets see how it pans out.

The NZD USD New Zealand dollar is still in a downtrend. Near term there appears to be a falling wedge type pattern which has potential measurement implications back up to .6000 if the NZD USD is able to break above the near term down trend line of the falling wedge.

However let there be no doubt that NZD is definitely in a fairly persistent downtrend and should be assumed to remain so for now.

In a related story the US dollar index has broken to new 52 week highs and shows continued trend strength.  Apparently what is going on is that the US Dollar for now is still the ‘least worst’ currency of the world and hence we are seeing more flight to US dollars relative to other world currencies.

So it is not a bad idea to keep an eye on the US dollar index as a clue to when NZD USD will do a meaningful longer lasting turn.

A very bearish situation for the US Dollar index would be a failure in the next week or two to maintain these new 52 week highs.  If the US Dollar index falls back down under the new support level of the 88 level.  If we see a breakdown under that level it would be very bearish indeed and could indicate the beginning or a rotation out of USD and into European currencies and also cause the NZD USD to get a rally going.