Fed in Focus, What do Elliott Waves Say

EURUSD

EURUSD daily chart
Dollar Weakens, Temporarily

We mentioned last week that the spike into Sustainable Bull territory was a concern, and certainly this week’s action makes it look like the euro bulls are in control. But, prices have failed the last seven times they’ve reached the 1.1500 resistance area, and we think that’ll be the outcome this time. We have added an alternate that would explain a push higher with the wave (X) and (Z) labels, although even under that count, the bears will ultimately win the day after a push towards 1.1800.

EURUSD 120-minute chart
Impulsive Down, Corrective Up

Here we see the near term impulsive down, corrective up count. Prices should find resistance near the wave .i of iii low, 50% retracement and channel resistance. A sustained push above this level would be cause for concern for the bearish view, and we’re not going to fight higher prices on a push above there. We’re sticking with the bearish view for now, though, based on the impulsive looking action down from the late August spike, and the corrective action up for wave a. That certainly doesn’t inspire bullish tidings, and looks more like a flat correction is underway for wave (ii).

GBPUSD

GBPUSD daily chart
Bounces, But Likely Corrective

Unlike EURUSD, the spike into the August top didn’t take RSI to the Sustainable Bull territory (upper blue zone). And, the decline into the wave (i) low, did take RSI into Sustainable Bear (lower grey zone). So, if we want to be USD bulls we should do so against the pound and if dollar bears use EURUSD. The 61.8% retracement level of wave (i) sits around the 1.5550 area, which is where wave (4) topped, and it’s been a long area of congestion. If prices push above there, we’ll need to be aware that our bearish view if off base.

GBPUSD 120-minute chart
Correction Up Isn’t Complete, Yet

Here we’re showing the count on the decline in five waves for (i) followed by a partial upward correction. Waves a and b are pretty darn clear. That leaves us in wave c up, and if it’s equal to wave a, which is a very common relationship in zigzags, then we can target the 1.5586 level. Above there and we’ll abandon our bearish count and await clarification.

AUDUSD

AUDUSD daily chart
Bears Still in Control

We continue to think that the Aussie has some tough sledding ahead, even though the decline is mature. First, the RSI reading into the low was in Sustainable Bear territory, and there wasn’t even a whiff of divergence. So, unless prices overlap the wave i low, which would put them above the down channel, then we’re going to assume lower prices are in store.

NZDUSD

NZDUSD daily chart
Prices Acting Weak

There’s little for bulls to sink their teeth into here with NZDUSD, even though our count is complete to the downside. We can say that the action up from the low seems like an impulse, and the action down is choppy and consuming time, the hallmarks of corrections. But, even though RSI was diverging bullishly into the low, it did so from Sustainable Bear territory, which means another new low, or at least a test of the low is in store. The trouble is how would we count that? I’m not interested in spending too much time with it, since it’s not clear, and instead, I’d rather focus on other pairs for now.

USDJPY

USDJPY daily chart
Up For a Week, Then Look Out Below

First, let me point out a great example of what I was talking about with NZDUSD here in the yen. Notice that there was a bearish divergence in Sustainable Bull territory into the wave I high. Then, after a clear three wave decline, prices tested the high in wave B, falling just short on price, but dramatically short on RSI. It’s that RSI divergence that we’ll be looking for if NZDUSD intends to bottom.

Now, everyone should know by now my total and utter disdain for the yen and its puppet masters – Abe & the BOJ. But, the rally counts complete from the all-time low up into the wave I high. Now, we believe the entire rally is being corrected, although that correction may end up being awfully shallow given the propensity to print yen.

Regardless, a rally up to retest the broken trendline that had contained prices since January seems likely. Then, just as people assume the yen weakness is back, we get a wave (C) decline that should take prices substantially lower than the wave (A) extreme of 116.00. The 110.00-100.00 range seems appropriate, although we’re going to be looking to get massively short yen again towards the top of that range.

USDJPY 120-minute chart
Three Wave Decline For (B) Means Trend is Up

We have a very clear three wave decline for wave B, which means that the one larger degree trend is up. The late week consolidation appears to be a wave (iv) triangle which will give way to a thrust up to retest the broken line. We’re going to be looking to get short USDJPY sometime next week after we get a push higher and reversal back down. Stay tuned to what could be a volatile move.

Happy Trading!

The Wolf

 

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.

About The Wolf

Twenty years is a long time to be involved in the trading business. Through many battles in every asset class known to man, knowledge has been gained; and, this project is a way to share that knowledge. The Wolf is a big fan of repeatable market work, or the creation of a “process.”

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