Friday’s break left a three wave rally in place, which we’ve labelled wave (ii). We may get an early week rally attempt, but we think the euro has turned lower. That’s not to say it’s going to be a straight shot lower, in fact, after reaching parity, it seems likely that EURUSD will be back at current levels late this year, according to our top count. In other words, this next decline towards parity should complete the larger degree decline and lead to a return towards the 1.2000 level.
Nearer term, RSI has dropped below 50, and while we will likely see some support from the up trendline around 1.1200, any support should be temporary. We’re bearish against the wave (ii) high, although prices should likely remain well below that level.
Would Brexit be GBP bullish since it would sever the link with the debt troubled Club Med countries (Spain, Italy, Greece, Portugal), or would it be GBP bearish since it would leave the BOE more free to print pounds? Any analysis you read on Brexit won’t be able to answer this question, because we simply don’t know. So, while Elliott wave analysis isn’t perfect, it does give us objective criterion to prove or disprove our thesis.
Currently, our thesis is that GBPUSD is going lower, towards 1.33-1.30, and potentially lower. We can now lower our critical resistance to the wave (ii) high, similar to EURUSD. A push above that means something more complex to the upside is taking place for wave (4), or something more bullish, perhaps. But, until then, we see the rally off the low as a three wave move that’s complete. We have five down for (i) and a three wave correction for (ii). Look for support to prove temporary.
We’ve been aggressively bearish AUDUSD, and we see no reason to change that view. Certainly, a wave 2 bounce is going to happen, but only after five down are complete for 1. We could force a nearly completed count for 1, which allows for a bounce back towards the .7600 area, however, it seems more likely that we’ll see lower first, given the downside momentum. That means a bounce for wave 2 could be contained by the down trendline and the .7400 pivot area. The failure to hold that level last week, after a corrective bounce, leaves the bears in control.
NZDUSD closed the week below the up trendline. Without a Sustainable Bull reading (upper blue zone) within the wave C of (X) rally, there’s little reason to consider the current decline a correction. In fact, even if the larger trend had turned up, the choppy diagonal up from the wave B low would still mean a return to .6400 first. A rally back above the wave (ii) high would change things though, and that remains our critical resistance.
Our USDCAD count shows the difference between trading and analysis. While we have a completed rally into the January high, it was accompanied by Sustainable Bull readings on RSI, with no divergence. Then, prices collapsed in a relentless selloff, with multiple Sustainable Bear readings, and no divergence into the low. So, even though we’ve been expecting this wave B rally for sometime from an analysis perspective, we haven’t once become aggressively bullish. As traders, when a picture isn’t crystal clear – DO NOT TRADE IT. A mentor once compared trading to fishing. Most of the time you’re sitting around, waiting for a bite, you’re not constantly reeling ’em in, right? So, we’re expecting a further bounce to complete B, but is wave (b) of B complete? Is the rally going to a new high per the Sustainable Bull reading? Too many questions, when the counts elsewhere are clear.
There’s still only three waves up from the low, but we think we’re going to see a small wave higher to complete wave (i) or (a), prior to the (ii)/(b) decline. Perhaps a deep retracement for wave (ii) would test the low, prior to a significant move higher on some more idiocy by the BOJ. We’ll see. Instead, if price drop below 107.46, then maybe the ending diagonal for 5 is per the alternate count with the wave 4 high where we have (ii) of 5 now. Either way, the next week or two should be range-bound.
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.