This week, we’re going to let the charts do most of the talking. Let’s get right to our Elliott wave forex counts.
So, we thought the euro was headed higher in a correction, but the dramatic nature of this week’s action surprised us a bit. What we can see clearly is that the action from the March low is overlapped, corrective action, and the channel that prices reversed near highlights this. That doesn’t mean that we couldn’t get more sideways-to-higher action based on the brief spike on RSI to Sustainable Bull territory (upper blue zone), but the next chart argues against that.
The impulsive action down from Monday’s high is pretty clear here. Allow for a bounce, but we have little reason to think something more bullish is going to unfold. Perhaps risk markets are back on and the Fed is going to raise rates. But, maybe something more “European bearish” is going to unfold instead. We’ll be looking to sell a rally mid-week for a swing trade, or longer.
Here too, the dramatic reversal is clear. One thing to point out, though, is that technically wave (C) did end above wave (A)’s peak. It also ended at the prior wave 4 of (3) resistance, and RSI saw no push into Sustainable Bull. Allow for a bounce early in the week, but we’re looking lower.
It looks like an ending diagonal for wave (C) was the game, with a clear downside impulse after Monday’s high. A small corrective bounce should unfold here too, which is a bearish opportunity. Perhaps something negative is going to emanate from the UK based on the pound being weaker than the euro. The 1.5500 area has been pivotal for prices, so a test of that level is an ideal area to be bearish from.
You can see the decline in AUDUSD this week has seen RSI reenter the Sustainable Bear zone (lower grey). That means any bounce is likely to be corrective, and now it seems the 100% expansion target for the wave B correction is well within reach. It’ll take a rally above the channel to suggest something less bearish is unfolding, although even then, prices need to impulsively push above the wave (iv) extreme to indicate the decline is complete. Given the calls for lower GBP and EUR, it’s hard to imagine good tidings here.
With the collapse on Monday, notice that RSI failed to reach Sustainable Bear territory. That’s significant given the extent of the downtrend and collapse. That bodes well for the Kiwi coming up, but there’s not much to go on from an intraday basis, and really no decent stop levels for bullish views. Let’s keep an eye on the down trendline, and the former lows from wave (iii) and (iv) which might provide some resistance. A push through there would argue that this pair has bottomed out.
Prices struck a new high, which means the entire rally could be complete. But, the nature of the rally up from the wave 4 low isn’t conclusive since it appears to be three waves. That means wave 5 is either ongoing, or wave 4 is tracing out an irregular flat. The bearish divergence from below Sustainable Bull territory does argue that wave 5 isn’t still underway, and that it’s either complete or wave 4 is still unfolding. Aussie looks vulnerable, Kiwi has potentially bottomed, so we don’t really have a theme to lean on with the commodity currencies. I’m willing to stand aside here with such little to go on.
We were expecting to see lower prices, and that’s what took place, briefly. Notice that prices found support at the extreme of the prior fourth wave, in a clear three wave flat pattern, which we’ve labeled (A). But, you can see by the alternate, that we could call that decline wave (4), which would match up well with Laszlo’s count for the S&P, given the high degree of correlation between the two lately. Regardless, when one looks at a weekly bar chart of USDJPY (below) or the S&P 500, what we see is a hammer pattern, with the bottoming tail from support. There’s no reason to be near term bears here. We should allow for a push higher, and if we get back into resistance near the former B wave top, we can look for a reversal.
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.