There’s little doubt the yen will ultimately end up in the currency dustbin of history - Elliott wave forex counts

The “Most Hated” Currency & Elliott Wave Forex Counts

We’ve made no secret of our detest for Japanese monetary and fiscal policies, and the ultimate outcome for the yen. There’s little doubt the yen will ultimately end up in the currency dustbin of history, along with the Zimbabwean dollar and Venezuelan bolivar (The Wolf correctly called for Venezuelan hyperinflation in January 2010.). In fact, a currency fund manager friend of ours has a price target of infinity for USDJPY. While that may be overstating things a bit, he’s not far off.

There are consequences of running 9 rounds of QE and leaving overnight rates at sub 1% for 20+ years. Those consequences aren’t being seen in the Japanese Government Bond market, because the BOJ is effectively a willing buyer for any and all JGBs. The result is that the yen will fall victim, but as we said back in January, nothing moves in a straight line. Now that the mainstream news has caught on to this four year yen decline, it’s time to start thinking about a small bounce in the yen (fall in USDJPY).

It’s too early to call the top, but sentiment against the yen has now tilted towards extremes. It’s almost time to be looking for a top and a turn lower.

USDJPY

USDJPY daily chart
Rally Rages as Expected, Critical Support 121.48

So, we nailed the bullish call here last week, and we’d like to thank the BOJ for its continued monetary insanity. Like we said before, oftentimes, thrusts from triangles can look like one wave, rather than a “normal” five wave move. I’d say the top counts are about 50/50 likelihood, but regardless, we can raise the critical support level to the wave (i), or 1 high, at 121.48.

USDJPY 240-minute chart
Short Term Trend is “Sustainable”

We would like to point out the fact that RSI on both the daily and 240-minute charts followed prices to new highs, and in the process have hit “sustainable bull” territory. That means that any decline is best viewed as corrective action. Not coincidentally, our Elliott wave count is still pointing higher too. We do believe that this rally won’t see an extension, but it’s still a possibility, which is why we have left two degrees of labels on the rally up from the wave (4) low. We can look to be a dip buyer early in the week, against the wave (i) high, although we’ll be nimble at this point in the trend. Price targets were discussed last week.

EURUSD

EURUSD daily chart
Top Count on Track

We were looking for a spot of weakness to complete A, to be followed by a B wave rally, and that’s exactly what we got. Look for stiff resistance from the wave (a) low up to the wave (b) extreme, though, and we’ll look to be sellers of euros sometime next week. This pair, however, does seem to be ranging now.

EURUSD 240-minute chart
1.1050 Has Proved Important

Notice that the 1.1050-1.1100 area has been pivotal since the wave 3 of (5) low back in January. Each time prices crossed that area, it has proved to be support (wave 3 of (5) low, wave iv of (iii) of C low, and wave (a) low) and resistance (wave A high, a of (b) of B high and wave (b) of B high). We’d imagine, it’s going to prove to be resistance next week, and we’ll look for some shorter term downward reversals once prices reach the 38.2% retracement of the wave A decline. Do notice that the short term RSI did reach into “sustainable bear” territory into the wave A low. That means, a bounce should be corrective; and, don’t forget, there is a bearish alternate for EURUSD that calls for new lows directly.

GBPUSD

GBPUSD daily chart
Wave (B) Retraces Almost 50%

After the five wave rally for (A) we were anticipating a three wave decline that would retrace roughly half (plus or minus 10%) for wave (B), which would find support in the previous fourth wave of one lesser degree. Prices have fallen into that range now, and if our top count is right, we should be seeing an impulsive turn higher from near current levels. RSI analysis supports this idea in that it hit sustainable bull territory into the wave (A) high, and is now in “bull support.” As long as it remains above “sustainable bear” (the lower grey zone), we’re sticking to our top view.

GBPUSD 240-minute chart
Three Waves Down, Looking for Support

Ideally, we’ll get an early week bounce that takes RSI up, and then a final low near 1.5240, with a bullish RSI divergence from above sustainable bear territory. If we get that, and then an hourly bullish reversal, we’ll look to get on board a push higher. A push above the wave A low, would likely mean the upside reversal was taking shape.

AUDUSD

AUDUSD daily chart
Straight Down After Trendline Break

The small second wave correction is the bane of existence for the Elliott wave analyst. Wave (ii), in fact, did retrace a Fibonacci 23.6% of wave (i), but it looks barely noticeable on the daily chart. Nonetheless, the trend is down, and we’ll be looking for a small bounce from support (current levels) to allow us to join the downtrend. We’ve added the alternate count calling the recent peak wave (iv) of A, which would then allow for a larger wave B bounce. We do favor the top count still, which suggests prices are in wave C to the downside now, or perhaps tracing out a more complex B wave.

AUDUSD 240-minute chart
Look for Small Bounce

We can use the wave (i) low as the critical resistance for our top count, and should we see prices above the .7700 area in the wave iv bounce, there’s an opportunity to join the bears. Notice that the 240-minute RSI is firmly in support of lower prices, and that any bounce is likely a correction. Look lower.

NZDUSD

NZDUSD daily chart
New Lows Confirmed by “Sustainable Bear”

As much as the Kiwi was outperforming into late April, it has totally flip-flopped with its current under performance. RSI is into sustainable bear territory which suggests lower still is in the cards. We can lower critical resistance for the near term count to the wave (i) low, although, realistically, prices should remain below the down trendline as well. Also, notice the break back below the long term down trendline, which was previously support (at the wave (i) & i lows).

NZDUSD 240-minute chart
Any Bounce is Bearish Opportunity

Similar to AUDUSD, the trend is lower, and overhead resistance is substantial. The .7200 area should prove to be stock full of sellers. It’s possible that we’re looking at an ending diagonal down from the wave B high, since the internal count for wave (i) is a bit clumsy. That would actually mean a slight overlap wouldn’t derail another probe to new lows. Under that view the wave ii high is a better critical resistance. Notice the push into sustainable bear (lower grey zone) on RSI on the 240-minute chart as well.

USDCAD

USDCAD daily chart
Impulsively Probes Above Resistance

So, we mentioned last week that we’d be quick to change to the bullish alternate if five waves up present themselves, and that’s just what happened. Now, we can look for a three wave decline to turn aggressively bullish against the wave (4) low. We’ve mentioned before the similar nature of the current rally to the 2008-09 top, and the analogy is still applicable. We’re not sure how much more gas is in the tank for wave (5), but it seems new highs are in store. Notice how prices found support at the base channel up trendline after a brief stab below it at the wave (4) low. They had no trouble pushing through resistance from the former support area (now resistance) from the wave (iv) of 5 of (3) lows. Ideally, prices will remain above the up trendline now into the wave 2 low. Lastly, while wave (4) seems shallow, it did retrace more than 23.6% of the wave (3) rally, and considering wave (2) retraced about 78.6% of the wave (1) rally, it’s proportionate in its alternation (i.e. wave (2) sharp, wave (4) sideways/shallow).

USDCAD 120-minute chart
Five Up Channels Nicely

Sometimes it can be difficult to discern between a three wave move and a five. In such cases, a trend channel can be of use, since five wave rallies should allow waves three and five to connect with a parallel with waves two and four. We can see that on the short term chart, and now we’ll look for a move back down towards 1.2300 to complete wave 2. Do notice that RSI reached into sustainable bull into the wave 1 top, but failed to do so at the suspected wave (b) peak. We wouldn’t be surprised to see a shallow wave 2 pullback, so we’ll be looking for an hourly reversal bar along with a follow through bar to get bullish.

USDCHF

USDCHF daily chart
Overlap of the Wave A Low

Prices overlapped the wave A low as expected, although the five up for (i) isn’t quite as clean as in USDCAD. We’re sticking with the near term bullish count, although we’re a bit lukewarm about it. A push above the wave (i) high would mean bulls were firmly in control near term. The ambiguity of the larger count, though is a bit troubling for swing positions, especially given the Jeckl/Hyde nature of the Swiss National Bank. Does it want a strong or a weak currency? Why did it abandon printing francs to buy euros, only to buy stock shares of stock at all-time highs? We have noted previously that massive expansion of the SNB’s balance sheet, which does support the idea of a lower franc, though, considering the weakness we’ve seen in the yen on an equivalent “printing” basis.

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.”

3 comments:

  1. First time on this website, I think it’s really helpful. As a new trader I get really excited when I read other people’s views on out the market. And it always fascinating how other people analyse the market. I don’t have an order for NZD/USD it’s really tricky setup for me, but I noticed an Inside Bar on a H4 candle that will be signal to go short, but I believe I should wait for rallies before shorting it.

    1. Hi Hlo, thank you for visiting us.

      Please note that 240-minutes bull reversal bar is relatively small, has a bear body and what is more, it has developed too low on the RSI indicator. The RSI(14) shows 26 therefore my best guess that this reversal bar is either going to fail within 4-6 bars (i.e.) by Monday morning ET or might turn the NZDUSD pair into a range. This latter one is the most optimistic scenario bulls can hope for. The market travels south in a sustainable bear trend with larger time frame (daily) confirmation.

      I have a previous post about an almost identical situation – please follow the link and read that story to understand better the situation: http://traderskillset.com/weekly-eurusd-candlestick-analysis/

      The post gives you a good handle on recognizing bad quality signals and potential signal failures.
      Laszlo (filling in for The Wolf)

  2. I concur with Laszlo’s comment. You’ll notice that I left off a wave iii label for NZDUS, which means that low isn’t in place yet. I may not be far off, but it’s difficult to say when it will be seen. From a swing trading standpoint, we’re waiting for a wave iv of (iii) bounce to get bearish.

    For a quicker response, @traderskillset on Twitter is something we actively monitor.

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