Here’s a closer look at the fourth wave triangle, which saw a sharp downside reversal on Friday. Continue to look lower, as long as prices remain below Thursday’s high. Use an early week bounce to get aligned with the bears. A break of the wave (d) low, would also put prices below short term up trendlines and structural support, leaving prices headed lower, and potentially much lower. Bigger picture, the 100% expansion of the bounce since the December low points to below .9300. It’s hard to see prices going that low, but the bottom line is that EURUSD should come under pressure. Watch out for fireworks coming from the European banking system (SAN, DB or Italy).
Prices bounced, as expected; but, GBPUSD reversed downward on Friday, forming a bearish engulfing pattern. The daily body actually engulfed the prior five days’ bodies, leaving us a very defined risk vs. reward. We are bearish against Friday’s high, looking for a 100% expansion of the wave (4) correction, which points to 1.3975. We’ll be looking to lower critical support to any secondary high that forms.
We’re looking for one more final new low in AUDUSD based on the lack of a clear five wave decline from the wave (iv) peak. But, we’re not going to be dogmatic about it. Should prices clear the wave i low, which they came perilously close to on Friday, we’re not going to fight higher prices. Wave (iv) could have ended where we have the wave ii of (v) label, or in some other manner. Regardless, any price action above the .7200 area argues for weeks, if not months of a rally.
The bounce was more muted in NZDUSD than in AUDUSD, so we still think the near term trend is down to complete wave C, and possibly the entire decline from the 2014 high. Regardless, we’re still going to remain bearish against the wave (iv) high, although prices shouldn’t break the down trendline if they are headed to a new low.
Given the action since the wave (i) low, we believe wave (ii) is still underway as an expanded flat correction. The details are shown below, and the idea of a deeper wave (ii) retracement fits well with the idea that AUDUSD and NZDUSD are headed lower. We’re still not interested in getting long CAD, at least until we see a clearer wave (ii) and downside reversal, perhaps retesting the broken line off the wave (3) and 3 of (5) highs.
Friday’s action is why we aren’t interested in getting long yen, despite the “topping pattern” and longer term trendline break. Prices found support at the extreme of the prior fourth wave, and repeated structural support. We’re bullish against the wave 2 low.
When you combine that with the Keynesian clowns Abe and Kuroda leading the charge for a depreciating currency, there’s little reason to think they won’t continue to print the yen into oblivion. Despite the US’s insurmountable debt, and Europe’s impassible monetary union’s deficiencies, it’s actually Japan that leads the globe in monetary and fiscal inanity.
ZIRP and fiscal deficits don’t work, otherwise Japan wouldn’t need them anymore. But, instead, the clueless leaders there (and everywhere) simply promote even lower rates and even more QE – evidence be damned. It seems the USDJPY may already be on my fund manager friend’s target of infinity (i.e. the yen becomes worthless, ala the Venezuelan bolivar).
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.