We’ve been talking for a while now about looking for evidence of a turn in the US dollar. Friday’s action was almost uniformly bearish for the buck. The NZDUSD in particular, along with the Aussie, appear to be bottoming according to our Elliott wave currency forecast. There’s still room for a final Elliott wave move up in the USD, but the trend is starting to lose strength. Sentiment, in particular, has almost everyone looking for dollar strength and European QE, which means a weaker EURUSD, right? Well, the last time the ECB announced a printing euro policy, in the summer of 2012, the euro bottomed and rallied from 1.20 to 1.40. So, we may have yet another sell the rumor, buy the news situation, as the euro may actually strengthen at least for a relief rally from support.
Friday’s action is the first daily reversal signal we’ve seen since early December. That alone isn’t enough to call the low on a daily basis though, especially given that RSI is barely diverging with the prior lows. It’s best to favor one more small low, even though counting waves since the wave (iv) high is a bit difficult (since it was basically straight down). We’ll look for sellers to come into the market forcing one more new low, unless prices are able to close above the midline of the down channel. Sentiment is so one-sidedly bearish, though, we’re not comfortable pressing shorts either.
Similar to our EURUSD write up, the pound is attempting to reverse the decline. It may be slightly ahead of the euro, though, given that Wednesday’s and Thursday’s action closed off the lows. Nonetheless, we’ll defer to the trend until we see a close above the midline of the channel at a minimum. We do have some bearish divergence here, although it’s coming at a very low level. We’ll be looking to count five waves up, and, if that develops, then we’ll be looking to establish bullish positions against the low. Preferably, though, we’ll be working on that next week after one more slight new low.
The Aussie’s long decline is ready for a relief rally. We can count five waves down from the wave (X) high, there’s a bullish divergence into last week’s low, and the weekly chart shows a bullish engulfing candlestick formation (not shown) from longer term support around .8000. That’s a litany of reasons to look for a return to the prior fourth wave extreme, at a minimum. The extent of the rally may indeed take most participants off guard, since conventional wisdom is suggesting a slowing global economy (which would normally be bearish for Aussie). But, the Aussie has already declined substantially, before most people were aware of the slowing, so AUD/USD is leading a bit. Regardless, we’ll continue to look at the waves to determine our thoughts, and they are looking for a decent rally leg here.
The market bottomed on a Monday and closed near the high on Friday, in action that saw a bullish engulfing candle, which engulfed the last four weeks of action. There’s a saying that amateurs open markets and professionals close them. That’s why we’ve mentioned before that Friday closes are important to the larger trend. For the kiwi, that action likely means our larger count is on track, or at least the call for a bigger rally wave. The lack of a new low leaves several counts on the table, but all three of the most probable counts call for a return to the .80-.8100 area. We’re bullish on pullbacks, as long as they appear corrective, given the bullish divergence on RSI and call for a larger rally.
Prices did not follow through to a new high as we thought they would last weekend. But, the action down still looks corrective so far, so we’re leaving the top count, which calls for one more new high, as the top view. Unless we see a push higher early next week, and given the break of the channel, we may see prices trace out another fourth wave triangle. The wave (5) truncation count is a bit of a stretch right now, given that we don’t have anything impulsive to the downside, yet. But, the action in RSI, which is starting to break below the 50 area is a bit troubling. Still, with the BOJ intent on printing the yen into obscurity, we’re best deferring to the trend until more evidence of a turn is present.
Unlike every other market in this report, Friday’s action was a bullish candle, not a bearish one. Yes, we are at the upper channel line, but throw-overs happen too. RSI made a new high for wave 5 as well, so there’s not even an indication of trend slowing yet. If there’s a market to play further USD strength it’s this one. Keep in mind that the decimation in the energy and commodity sectors is going to wreak havoc on the Canadian housing bubble and economy, which means low rates are likely the future of monetary policy north of the border. We’re looking for the equality target up at 1.1936 and our head and shoulders target at 1.1985 that we showed last week. Only a break of the grey up trendline would suggest the top may be in place. Bullish until then.
Here we did see reversal action on Friday, so the bullish posture is on slightly less firm ground than in USDCAD. But, the rally is powerful, and, usually, we see at least a slowing of the trend prior to reversal. It’s not a guarantee, of course, but it’s going to take some follow through in the form of a small time frame five wave decline before we are willing to turn bearish. That’s especially true given the fact that the Swiss National Bank is pursuing almost as poor policy as the BOJ and the Federal Reserve.
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.