Truncation or not, Friday’s action is what we warned about. Keep in mind what the BOJ is doing. It is monetizing roughly the same monthly amount through QQE as the Federal Reserve did in its QE3. The difference is, the US economy is four times the size. That would make the GDP equivalent of the US doing $250B/month. In addition, even The Bernak recognized that at some point QE needed to end, hence his halting of QE1 and QE2. The BOJ holds no such belief that QQE needs to end, the only question is what it will buy besides JGBs and half of the ETFs in Japan. We have no doubt that the simpletons running monetary and fiscal policy in Japan are fully committed to their current course. Yen buyers beware.
We’re looking for five up to complete wave (i), although there’s an outside chance we could see one final low, or a retest of the bottom. I’m not counting on that, though, I’d rather err on the side of the yen’s status as toilet paper and heating fuel.
The EURUSD hasn’t been able to gain any traction to the upside since Jan 2015. We see this as “consolidation means continuation” which portends lower for the pair. A rally early week last week failed below our wave Y top, keeping our top view on track. Use any bounce to be bearish, as long as the wave (ii) high isn’t taken out, and ideally the down trendline off the recent highs should hold too.
Price are still challenging resistance, and there’s likely a few more wiggles to the upside left, before the larger down trend reasserts. A drop back below the wave (ii) low seals it for the bears, but until then, we’re allowing for some additional sideways to higher action. Notice RSI has pushed back above 50, which confirms this idea.
It’s a little too early to say for sure that a major top is in place, but that’s what our top count suggests. The lack of a Sustainable Bull reading into the wave (v) top, along with the Key Reversal day on Thursday, and it’s follow through Friday suggest much lower prices are ahead. We are aggressively bearish, and this one could get ugly to the downside. A safer play would be to allow a small five down to develop, test the up trendline, and await a small corrective bounce. But, reward is favorable relative to the risk for bears.
NZDUSD respected the internal trendline to a T. It’s reversal after touching it, and the .6880 resistance area was a thing of beauty. Also, notice the lack of Sustainable Bull into last week’s high. If this were a new bull market, would momentum be so lackluster on a breakout? Similar to AUDUSD, the bears aren’t on cruise control yet, but we think they soon will be. A break of the up trendline off the wave (ii) low will cement it. Remember that, ending diagonals are often swiftly retraced, which means prices could return to the .6400 area rather quickly.
Unlike it’s commodity cousins, we’ve yet to see a confirmed reversal here. In addition, we have Sustainable Bear readings on RSI. That likely means the bounce is going to be muted, unlike the action we’re expecting in AUD and NZD. Of course, perhaps that means we won’t see much downside follow through in those pairs. Regardless, use the down under currencies for any “weak commodity” type of plays rather than the CAD.
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.