ECB, BoJ & Fed Tighten By Failing to Loosen Policy

We’ve all heard comments like, “Orange is the new black.” Well, in today’s upside-down world of monetary policy all three major central banks decided to not loosen policy further. Most market participants were disappointed, although it did spark some “risk-on” behavior.

But, underneath the bullish action, some subtle deterioration in the “Central Banker Omnipotence” theme has emerged. It is now becoming consensus that there’s a limit to what central bankers can actually achieve. While there still remain holdouts, like Bernanke, Krugman and Rogoff, what else would you expect from these Keynesian/Monetarist clowns? There’s some people who will never change their minds regardless of the evidence. Remember, ZIRP, NIRP and QE all create as many problems as they solve – such as:  pension shortfalls, people saving more and creating an oversupply of goods.

EURUSD

EURUSD
Still Above Support

The euro found support Wednesday at the exact low of 8/31, which means wave (E) may still be in progress, as a triangle itself (per the alternate count). We still don’t have bullish action, but, we can’t confirm that a top is in place until we see a break of this week’s low and the up trendline off the wave (D) low. One slight tweak to the alternate might be that this week’s low could be wave B of (E).

GBPUSD

GBPUSD
Pound is Headed Lower

The pound heading lower has nothing to do with Brexit, and everything to do with the long term trend that’s been in place since the November 2007 high. We’ve been expecting to see a drop below the 2009 low for a long time now. So, the recent consolidation post-Brexit, is exactly that – a consolidation that will lead to another move lower. The only question is how much lower. We think sentiment sets up better if indeed this next low would be the final low wave (5) of ((C)), but we’re open to either interpretation. While we’re expecting lower prices, we think the euro has more downside from here than the pound.

AUDUSD

AUDUSD
Hasn’t Given Up the Upside Yet

Prices have returned to the underside of the broken red trendline. Is this a final kiss goodbye before the downside resumes, or is something more bullish underway? We favor the former, but we must admit that the action down from the wave 2 high could very easily be classified as corrective. As such, we’re going to need to see something sustained to the downside before taking action here.

NZDUSD

NZDUSD
Kiwi Into Resistance

We’re backing out a bit to show the overhead resistance that kiwi has run into. The action up from the August ’15 low has the look of a bearish wedge, and we think it’s complete. This action suggests the entire rally will be fully retraced. We’d also like to point out the bearish divergence on RSI, from below Sustainable Bull territory.

NZDUSD
Kiwi Breaking Down

The breakdown in kiwi is significant in its under performance, given that it has been outperforming for sometime now. But, after the false breakout, it has traced out five waves down for (i), and corrective action in wave (ii). We’re aggressively bearish against the wave (ii) top. We could be looking at a longer term play to the downside here too.

USDCAD

USDCAD
Longer Term CAD

Since we’ve nothing constructive to say on the daily chart (once again), we’ve pulled up the weekly USDCAD as well. This shows the completed structure up from the 2011 low, and the start of the corrective decline for what we think is ((X)). Notice how the old wave (3) of ((A)) highs acted as support for the current decline. Prior fourth wave support is lower, though, into 1.2000, the action up from the wave (A) low looks corrective, and there was a weekly Sustainable Bear reading into the wave (A) low. All of this suggests prices will break the 1.2615 low into the wave (C) bottom. If this is correct, along with our kiwi and Aussie counts, this may mean something constructive for oil, but bad for other commodities. Perhaps an oil supply disruption? Something to consider.

USDJPY

USDJPY
Looking for a Generational Low

We’ve spilled a lot of ink writing about the coming low in USDJPY. It’s our feeling that this wave II low will mark the high for the yen versus the dollar that we will see in our lifetime. Many now feel that no matter what the Japanese do, it is destined to have a stronger yen. But, that’s wrong. There will be coming Keynesian stimulus and further BoJ support for the economy as it seems there’s unanimous support in Japan for a weaker yen. We’ve said before, that when this next wave of yen weakness starts (USDJPY strength) they will get a lot more weakness than they’ve bargained for. Our wave III target is at a minimum of 150.00, and likely closer to 175.00. Once the yen weakness has started (via currency inflation), there will be no way to stop it, since any rise in interest rates is a non-starter due to its astronomically high debt (240% debt-to-GDP).

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.”

One comment:

  1. Hey Wolf,

    Thank you for your post. It was good to read it as always.

    I have one comment on the Kiwi though. I have to say it may be too early to be aggressively bearish on Kiwi. Although I have a different wave count then yours, but I was shorting the kiwi too from last week. Today I decided to close near today’s low because the support levels – labeled (b) of Z and X on your chart – are so far untouched. The Lower trend line of edge only got pierced and the PA is testing it right now. Same with the small correction channel of wave (ii). EWP wised this low still can be a wave [B] of b of (ii) in my opinion. The momentum of the daily time frame is still at support (weekly and monthly looks really bearish), but the traders on the daily time frame might try to make run here, especially because the H4 RSI doesn’t confirm the breakdown yet. This is just my point of view. I think there will be plenty of time to be aggressively bearish later on…

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