Thursday’s rally activated the alternate count from last week, and you’ll notice that the rally faded prior to critical resistance from the wave 1 low 1.1087. That’s the dividing line between the to p count, and the alternate which suggests prices are still in wave ((B)) of (((Y))) to the upside. The top count did see Sustainable Bear readings, despite a small bullish divergence into Thursday’s low. Wave 4 could still be underway, which might even include a tiny stab above Thursday’s high, although we’d bet against that. Let’s allow for prices to decline, and a small bounce to develop before getting aggressively bearish, though.
Last week did damage to the idea that prices are in wave iii of (iii) to the downside, and frankly the decline from the wave ((B)) high is overlapped. That leaves open the idea of wave wave ((B)) triangle, and should prices push above the trendline, and especially the wave ii high, that’ll become the top count. But, until then, we’ll look for prices to have another failed rally, yet again. It seems that Thursday’s high is potentially another failure at resistance of former support (A and 1 lows). We’re not siding with the bulls, yet.
Do you know anyone bullish on commodities, or the “commodity” currencies? While I’m not ready to be bullish on copper, iron ore or crude, the AUDUSD is a different story. Prices are now above the down trendline, and are ready to test resistance in the .7500 area. Perhaps what’s happening here, is that money is being attracted to the high relative interest rates in AAA Australia, rather than in junk and emerging bonds. Regardless of the idea, it’s important to note that we now have a series of higher highs and higher lows. As long as prices remain above the red up trendline, we have to allow for higher prices.
Same story in Kiwi: Down trendline has broken, a series of higher highs and higher lows, and prices are headed higher to test resistance. Also, notice that RSI saw support in the Bullish Support (lower blue zone) area prior to this week’s rally. Don’t fight higher prices as long as we’re above the up trendline drawn off the low.
Unlike it’s commodity currency cousins, the Canadian dollar continues to consolidate sideways. In other words, it’s much weaker than AUD and NZD, and that seems likely to continue based on RSI action. In technical analysis, consolidation usually means continuation, and as a result, we’re still looking higher here. If CAD couldn’t rally the past two weeks, when virtually every other one was able to, then what happens when the USD heads higher? Answer: it’s likely to head higher versus CAD first. A break of 1.3250 would give us pause, but critical resistance for our count isn’t until the wave (ii) low.
In ’07-’09 yours truly was long a lot of yen on the idea of the “unwind of the carry trade.” That meant, the country that was in the worst debt position (of the developed countries) was actually seeing a rally in its currency (USDJPY decline). That reflex seems to still be there today, although it’s a bit weaker. Perhaps that’s because there’s a bit of a consensus that the BOJ is willing to print yen, especially into any economic weakness. In Japan, the mantra is “inflate or die,” and eventually I wouldn’t be surprised to see a type of hyperinflation set in in Japan. This sums up our unwillingness to side with a JPY rally of any large extent.
Shorter term, dollar/yen has simply moved sideways for the last two weeks in a consolidation of gains. Similar to USDCAD, this will likely resolve to the upside. A push back above the broken up trendline will confirm the next wave higher is ongoing. Only a break of the wave (1)/A high will cast doubt on this idea.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.