As we said this weekend, a disorderly default seemed more likely. Whether or not the game of chicken between Greece and the troika ends in an official parting of the waves, or one side gives in (The Wolf believes one side will cave.) to the other’s demands, that won’t change our Elliott wave currency forecasts. Only market action can do that.
Here’s a quick update.
Frankly, currency traders have all the reason they need to abandon the euro, but after a collapse Sunday night, prices have recovered. They happen to have done so from Fibonacci support of the wave 1 advance and near the red up trendline we identified as key support this weekend. Notice that RSI has failed to gain hardly any ground to the downside, which continues to support a bullish resolution.
We normally don’t publish such short term charts, since they have a short shelf life, but we wanted to show the internal subdivisions of the rally up from the wave 2 low. If we’re correct, we should see a small poke lower to complete wave (ii), and tomorrow we’ll be looking for an hourly reversal and follow through bar combo to get us aligned with the bulls. The two dotted lines near the wave c of (ii) low are the point where wave c will equal a and the 61.8% Fibonacci retracement of wave (i). Below there and we’ll have to await more evidence of a turn back up.
Part of our long standing call for a EURUSD bottom is the fact that the USD has been rallying on this concept of “policy divergence.” That’s where the Fed has slowed its QE program (even though it continues $8B/month of reinvestment) and will be raising rates soon. I’ll believe the Fed will raise rates only AFTER I see it. Until then, you have a bunch of FOMC members afraid of the deflation boogeyman and of making the “1937 mistake.” That’s where monetary policy was tightened “too much” and the country’s Great Depression continued. Quite frankly the evidence of a 1937 mistake is dubious – the real mistake was abandoning the gold standard and initiating the destruction of the value of the dollar – but, that’s for a different post.
Suffice to say, we just don’t think the US economy is very strong, and from a cyclical timing point of view a recession happens about every six years in the US , and the last recession ended six years ago. Is Janet Yellen going to raise rates knowing this fact, when she’s known as an inflation dove? I don’t think so.
Here too, the yen had all of the excuses it needed to stage a rally (Greece, China, Puerto Rico) versus the dollar and it couldn’t muster much of any. Prices are not only holding the breakout level, but they are now also sitting at trendline support. Should prices break the .618 of 3 level, we’ll favor the red alternate “topped” count, but until that happens, we are expecting one more last gasp to the upside. Notice that while RSI has broken down, it’s still not into Sustainable Bear territory (lower grey zone), although it’s getting close. We turned bullish against today’s low, and while we can’t rule out one more stab lower here too, we’re going to favor the upside unless our cited levels are broken.
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.