Our top two counts suggest the euro will visit parity against the dollar. First, there’s the top count which calls for an immediate collapse, likely having something to do with the banking system or breakup risk coming to the fore. Friday’s big topping tail suggests that prices will immediately head down, and potentially to the .91-.9200 area. We’re bearish against Friday’s high.
The second count suggests that wave ((C)) is forming as an ending diagonal, and that the diagonal started at the August high. Months ago, we were using the August high as the end of the triangle, and since prices never pierced that level, it’s still valid. But, the action down into the October low is a three wave move, which means that could be wave (1) of ending diagonal ((C)). This count suggests that rather than a (1) (2), 1 2 down from the November high, we’ve actually seen all of wave (3) of ((C)). That would mean wave (4) of ((C)) is tracing out a flatish type of correction to be followed by another three wave move to a new low. Both counts call for a significant move lower from here.
The pound failed at structural resistance, and RSI failed to record a Sustainable Bull reading (upper blue zone). While the pound is likely to outperform the euro going forward, it’ll underperform the USD. Policy divergence in the US is alive and well, with at least some token tightening by the central bank. The ECB is on full tilt printing, yet it still faces Italian and Spanish banking failures along with a general rise in disintegration feeling. A break of the down trendline would suggest wave ((4)) is turning more complex, although since wave (2) was a flat, wave ((4)) should be complete as a double zigzag.
Aussie has two bearish counts as well, both pointing towards a break of the 2016 low. In fact, a 100% expansion target on a break of the low of the Sept ’15/Jan ’16 consolidation points to the .5800 area. With the recent low registering Sustainable Bear (lower grey zone) it appears that bad news is coming down under (Chinese devaluation/slower growth, trade war, housing bubble pop, etc.). We’re aggressively bearish against the wave (i) low.
The outperformance of NZDUSD is striking, but we saw a Sustainable Bear reading into the recent low here too. While it has held up much better than AUDUSD, there’s little hope that it will continue. With all of the dollar pairs pointed lower, kiwi should follow too. We’re looking for further downside, and it potentially will play catch up to the south. The whole structure up from the August ’15 low looks like a completed wedge formation, which failed at substantial structural resistance. A break of that low points to a test of the ’09 low near .4900. Perhaps the NZ & Aussie current account deficits (and their need to import capital to sustain them) are going to be an Achilles heal.
It was more than temporary support near 1.3100, or was it? Certainly the pair has rallied substantially. I keep trying to come up with a bullish case for USDCAD which would better fit with the dollar strength theme we see elsewhere, but to no avail. The best I can come up with is a leading diagonal up from the wave (A) low. It’s not ideal, but an impulsive push above the 50% of A level would require us to rethink the probabilities. Until then, the Sustainable Bear reading and the choppy nature of the rally up from the low both suggest CAD strength, not weakness, is to be expected. Perhaps CAD crosses are of interest to some in the event of some type of oil/international shipping disruption.
What a difference six months make. Back in August, USDJPY positioning was bearish, and now it’s super bullish. What’s changed? Only psychology. While we can debate the merits of a one new high or not, what’s clear is that the entire tenor of this pair has changed. Massive yen weakness is coming, as soon as the initial wave 1 is corrected. Money printing will be proved to be the disease that it truly is in Japan first (Of developed countries, that is). It seems unthinkable, but a return to the 110.00 area seems likely prior to the beginning of wave 3 to the upside, and eventually a move to 150.00-175.00.
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.