A mountain climber reaches top - on the brink?

Dollar’s Run Turns Climactic

On the back of Mario Draghi’s quantitative easing announcement, and a Canadian rate cut, the US dollar has become ever more popular, and the trend has become euphoric. A counter trend move is due, although it’s difficult to want to fight the trend without clear cut reversals. Wait for them to show up first.

We do still think the euro experiment is likely to come apart, but that doesn’t mean the euro has to be the release valve. If Greece were to leave the euro, EURUSD would likely rally, with the failures happening in Greek bonds and the new drachma. So, be careful the narrative you listen too.

Now, let’s get to the Elliott wave currency forecasts:

EURUSD

Prices Decline on News
Prices Decline on News

Is the euro finally ready to make a rally attempt? There’s not enough evidence yet, but keep in mind that the 50-day moving average is almost a full 10 handles higher. A snapback rally is due, and it’s likely to be a vicious affair given the one-sided nature of the trend over the past 30 days. There’s hardly any bullish divergence left on the daily chart, but notice that RSI isn’t any lower than it was back in September, about 2000 pips ago. We’ll look for the trend to grind out a new low before a reversal happens, but we won’t ignore it if the reversal bar shows up first.

GBPUSD

No Sign the Bottom Will Hold
No Sign the Bottom Will Hold

Last week we wrote, “it’s hard to argue against a bearish stance versus last week’s high.” Now, we can lower critical resistance on our bearish view to Thursday’s high at 1.5213 as we watch prices grind out a bottom. Realistically, we don’t want to see prices above 1.5076, and we’ll look to reduce bearishness on any impulsive break of that area. Until then, we’ll look for one more early week extreme down move, or reversal signal, prior to altering our view.

AUDUSD

Rally Fails Spectacularly
Rally Fails Spectacularly

The budding rally attempt failed at trendline resistance, and it failed to hold the up trendline or 20-day moving average on Wednesday. That foretold weakness, and the Aussie saw that in spades on Thursday and Friday. This is likely the end of the move, rather than the middle, as evidenced by the RSI bullish divergence, but Friday’s close suggests the bears are in full control here. Wait for evidence of a turn.

NZDUSD

Kiwi Collapses
Kiwi Collapses

Four red bearish bars in a row for the Kiwi to close out the week. There’s little reason for optimism here now, although, we are likely in a fifth wave at a couple of degrees. We’ve altered the count a touch for wave (iv) which we showed as a triangle in last week’s chart. Instead, we’re now using a “triple three” count in w-x-y with a triangle in wave y position. Regardless, the trend is down until it isn’t, and while support comes in from the 2011 low at  .7370, that may prove difficult to hold. Wait for a daily reversal here too, prior to thinking a bottom is in place.

USDJPY

Range Trade Likely to Continue
Range Trade Likely to Continue

We’ve correctly been tracking the USDJPY fourth wave triangle idea, and it seems on track. We were able to use last Friday’s bullish engulfing pattern to turn bullish for a range trade, and we’ll be looking to sell a rally into the wave D high this week. Certainly, we could look to play the rally for a scalp up into D as well. Please keep in mind that while this sideways action is most likely a triangle, sometimes what appears to be a triangle can actually just be part of a larger “distribution top” like we saw in gold and AUDUSD in 2012. So, any break of 116.00 would warn the entire rally for wave I was complete.

USDCAD

Bank of Canada Tries to Offset Oil Decline
Bank of Canada Tries to Offset Oil Decline

Last week saw the Swiss National Bank allow its currency to rise. This week, both the Canadian and European Central Bank took the opposite tact. They both would prefer imports to cost more, and exports to cost less for foreigners – brilliant policy, right? The action in USDCAD validates our idea of wave (3) being underway, and although a correction is due, the loonie’s larger sell-off isn’t complete. RSI ticked to a new high also confirming our count. Allow a series of fourth and fifth waves to form over the coming weeks prior to looking for that larger selloff. We are now near various peaks from 2009 (1.25, 1.2715, 1.30) which are potential resistance points.

USDCHF

Fibonacci Cluster Above
Fibonacci Cluster Above

It’s a little difficult to see what we’re targeting for this suspected wave (B) or (2) rally in USDCHF, so let me explain. We’re assuming that USDCHF is falling in wave ((B)) or ((5)), with a counter trend rally underway right now in (B) or (2). The .382 retracement level of the “SNB collapse” wave (A) or (1) is almost exactly where we’ll have two equal waves up from the low. That’s also very near some structural resistance, so we’ve labelled the .9000 area as “Substantial Resistance.” It’s going to be tough to be long the Swiss franc, with the SNB re-peg risk, but we’ll simply follow the waves for now.

The Wolf was a currency analyst, for a well-know technical analysis shop in September 2011 when the EURCHF peg was announced. So, announcement risk is something we’re acutely aware of. In fact, recently Laszlo penned an article that addresses one way to deal with this risk. Personally, I tend to be more of a swing trader, looking to ride waves from 3-10 days, so there’s only one way to deal with announcement risk, and that’s to trade small. Very small. The smaller your trades are relative to the size of your capital, the smaller your psychological pressure of each trade is. I’ll deal with this more in a future issue.

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. Hi Wolf,

    thank you work, again.
    According to my calculation EUR/USD target is 1,085-1,095 as 1-(v)-v, but the trend
    is strong, yet.

    I usually play with Elliott wave using to predict a politician event. It is no time EUR/USD rally :), but
    I know it is only a game 🙂

    Have a good weekend!

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  2. Yes, the equality measurement is much lower, but I forsee something more of a back and forth market to get down there, although that hasn’t played out so far. Sorry for the late reply. Thanks for your continued interest and comments.

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