Potentially look for opportunities in some currency crosses

Currencies At a Crossroad

All of the pairs don’t agree on the near term path for the dollar. At a point in time like this, it’s best to view each of the pairs individually (as opposed to a dollar theme), and potentially look for opportunities in some crosses (EURGBP & CADJPY). Early week action may confirm several counts, and we’re looking for some multi-day follow through in certain circumstances. Stay tuned to Twitter for mid-week updates. Here’s our Elliott wave currency forecasts.

EURUSD

One More New Low Coming?
One More New Low Coming?

The action up from the low isn’t an impulse wave. But, many large corrections have begun from a small three wave move that corrected an extreme, so don’t pre-judge the extent of the move given the oversold extremes. Instead, let’s focus on the evidence. One daily close above the down trendline, RSI barely touching above 50 and prior support (now resistance) from the wave 3 low all suggest lower prices. However, a push above Thursday’s high would mean that either the double zigzag wave (iv) count, or something more bullish was underway.

Like Last Week, Focus on Trendlines
Like Last Week, Focus on Trendlines

The larger count is still in question, although the wave (iv) label is getting awfully large relative to its corresponding wave (ii). A push above the short term down trendline would have us allowing for something more bullish per one of the alternates, both of which would remain above Friday’s low, and ideally the up trendline. Notice that the shorter term RSI is suggesting something more bullish could play out. There’s nothing wrong with ignoring a market on a swing basis that doesn’t provide any ideal situations. We’re focusing elsewhere.

GBPUSD

Supported, Confidence Low
Supported, Confidence Low

Long term support at 1.4813 initially gave way but is still supportive of prices. Structural resistance from the wave 3 low, and from the wave i/a high down trendline also suggest the upside remains challenged. But, similar to the euro the decline is stretched, and a larger corrective bounce wouldn’t surprise us in the least. Nonetheless, like most market participants, we’re a bit reluctant to bet on our analytically count with actual capital, other than on a very nimble basis.

Short Term Range Trade in Effect
Short Term Range Trade in Effect

We do have a number of interesting technical points on the shorter term chart, though. First, the RSI on a 4-hour bar chart diverged into the low and has experienced a series of higher lows. While prices remain beneath the down trendline, and have broken the steep up trendline, the action ever since 3/20 looks corrective to the downside. After a very sharp rally in wave i or a, corrective action down either means a larger push to the upside is coming in iii/c, or a triangle. We’ll look to follow a trendline break in either direction on a short term trading basis.

AUDUSD

Bears Took Control on Daily Basis, Haven't Gained Much Ground
Bears Took Control on Daily Basis, Haven’t Gained Much Ground

The push above the longer term down trendline this week was a bullish development, but bulls faded as the week closed out. RSI has yet to confirm a larger bullish wave is underway, but we did have some bearish divergence into the wave (v) low. Often, after a longer term trendline break, markets will retest the broken line, and that may be what AUDUSD has in store for us this week. A drop below the line means we’re still searching for the wave A low, but any daily upside reversals could lead to substantially higher prices (towards .8300).

Short Term, Bulls Have Hope
Short Term, Bulls Have Hope

There is a series of three higher highs and three higher lows since the wave A low. That suggests sticking with our bullish view, but prices need to turn higher shortly. A turn above the short term down trendline could unleash a torrent of buyers scrambling to cover shorts. There’s no reason for prices to be below the .7700 area if a bullish resolution is going to happen, although critical support for the bullish view is the wave .ii of iii low. We’re going to watch this pair intently the early part of the week, as we’d love to turn aggressively bullish on an impulsive push above the down trendline. Stay tuned to Twitter @Traderskillset.

NZDUSD

Four Days of Bearish Action, But Little to Show
Four Days of Bearish Action, But Little to Show

Monday’s close confirmed the short term trendline break, and it was another attempt at pushing beyond the prior wave (iv) low. Tuesday’s reversal bar, a bearish engulfing pattern, at resistance put a damper on the bullish action, but there wasn’t much of a spirited decline. In my view, the action down from this week’s high looks corrective, and a larger B wave remains the call. A break back below the down trendline of off the end of wave (iv) would mean bears were still in control and to prepare for new lows.

Looking to Turn Bullish
Looking to Turn Bullish

We have some clear levels to watch next week. Certainly a push above the short term down trendline will turn us bullish against Friday’s low, so similar to AUDUSD, we’ll be watching this pair closely early in the week. A drop below Friday’s low, while not completely bearish, would set up a test of the up trendline. RSI’s push into sustainable bullish territory allows us to be bullish on shorter term timeframes, although nimble is probably still the best strategy. Given that former resistance becomes support, a push above this week’s high will allow for a push towards wave (iv)’s extreme, if not higher.

USDJPY

Rally From the All-Time Low  Complete?
Rally From the All-Time Low Complete?

So, the action down from the high is not an impulse wave, we know that. We also know the action up from the wave (4) low was not an impulse; it was either an ending diagonal for wave (5) per the top count, or it was a leading diagonal per the alternate. The dividing line between these two counts is the short term down trendline drawn off the high. Keep in mind, that if the alternate count is the operative one, the rally will extend potentially towards 126.00. And, if the bearish view is correct, we’re still likely to see an early week bounce.

Trendline Should Remain Intact if Bearish View is Correct
Trendline Should Remain Intact if Bearish View is Correct

So, allowing for an early week rally makes sense, but it seems likely to fail. While we are longer term bearish on the yen, (agreeing with one fund manager friend’s target for USDJPY of infinity) the yen may show some strength first, and a break of this week’s low, and the wave (4) low, would mean a decline of some substance was underway. We’re not thrilled about the prospects of being long something being openly destroyed by the BOJ and Abenomics, so this bearish count serves as more of a warning than a desire to stockpile yen. Kyle Bass (et al.) will eventually be correct, although no market moves in a straight line. If you haven’t already done it, maybe wait to refinance your mortgage in yen until the wave II decline is complete.

USDCAD

Reversal & Follow Through
Reversal & Follow Through

After last week’s key reversal, it was easy to hold a bearish view. But, this week’s action on Thursday and Friday suggest a pause in that view. Prices reversed from a test of our “Key Short Term Support” mentioned last week, and often, a false break is important. In this case, a intraday break of the uptrendline was reversed, resulting in a “hammer” candlestick on Thursday, with follow through action on Friday. We can’t argue with a bullish stance versus Thursday’s low, and that remains key support. A larger range, or (b) wave rally may indeed be the game.

1.2474 Should Remain if Bullish
1.2474 Should Remain if Bullish

So, USDJPY is bearish, but USDCAD is bullish? That presents an opportunity in CADJPY to the downside if both counts are correct (And, it would likely mean lower oil since JPY benefits from lower oil and CAD doesn’t). Shorter term on USDCAD we can see the action down is in three waves and bounced sharply from support. A break of 1.2474 will likely mean that a larger corrective decline is underway per the top count. But, notice the break of the down trendline, and then the kiss of the intersection of both lines on Friday. That’s the type of action we mentioned to look for this week in AUD and NZD.

USDCHF

Five Down, Now Waiting for Corrective Bounce
Five Down, Now Waiting for Corrective Bounce

The Swiss franc is going to have to show a very clear pattern for me to get involved. The five down from the wave (5) high isn’t textbook, but a corrective bounce would allow us to turn bearish. Support still exists in the .93-9500 area, but if we saw an opportunity near .9800 we might actually be willing to look lower aggressively. Allow for early week strength, and then a downside reversal near the 50% retracement level, would have us scouting for entries.

Happy Trading!

The Wolf

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.

About The Wolf

Twenty years is a long time to be involved in the trading business. Through many battles in every asset class known to man, knowledge has been gained; and, this project is a way to share that knowledge. The Wolf is a big fan of repeatable market work, or the creation of a “process.”

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