Last week was picture perfect for our EURUSD call. A corrective bounce led to sharply lower prices, and while we’re now at trendline support, and near the wave (iii) low, we’d err on the side of lower prices. A wave (iv) bounce is due to develop, but calling bounces in a larger downtrend is tough sledding, since “mistakes” will happen to the downside. We’ll be looking for another bounce to get aggressively bearish once again.
Last week’s bearish call here wasn’t nearly as successful. In fact, prices shot higher on Tuesday and Wednesday challenging the wave (4) top. But, another reversal candle on Thursday, with follow through on Friday keeps the bulls at bay. We’d much rather be long dollars elsewhere, though, because of the choppy uncertain nature of late. We’re still bearish, but perhaps we’ll just be trading sideways until we get some resolution on the EU vote.
Aussie has been our favorite way to express dollar strength during the month of May, and that may continue quite a while. Of course, wave 2 is going to develop at some point, and we may be near its beginning, but at this point, there’s likely many trapped bulls that are dying to get out at even. As such, look for the extreme of the previous fourth wave and the down trendline to cap any rally. The .7400 level seems like a pipe dream at this point for wounded bulls, but even that wouldn’t damage the larger downtrend, and would actually be a gift-wrapped bearish opportunity. Notice the continued Sustainable Bear readings on RSI (lower grey zone). According to our proprietary studies, that means any bounce is more than 87% likely to fail.
Kiwi is starting to fall in line with our forecast, and there’s likely more of that to come. The broken up trendline is now in the rear-view mirror, which keeps prices pointed back towards the .6400 area. A break of the down trendline off the wave (ii) top would mean the wave (iv) bounce had begun, which means the wave (i) low is our critical resistance for this bearish count.
We don’t have a Sustainable Bear reading yet, though one isn’t likely too far off. Also, notice that despite the large rally off the wave B low, there wasn’t one Sustainable Bull reading during wave C. That means the bounce is likely a correction and not the start of something bigger to the upside. In addition, even the wave B low registered Sustainable Bear, so the momentum profile is uniformly bearish.
Notice how deep the wave (ii) bounce was, and recall that at the time we wrote that the reversal after failing to take out the wave (X) high could be key. Then, compare that with the GBPUSD chart which looks very similar.
Despite the set back last week, we still see USDCAD pointing higher into a top. Keep in mind that wave B could reach above 1.3500, so the current set up is very attractive for the bulls, given the tight risk control at Thursday’s low. The rally in (c) could be an ending diagonal, but it also could be a series of ones and twos up from the wave (b) low. Regardless, the levels are well defined, and given that oil is now into resistance, we can see a pullback there, and something more to the upside here. At least, that’s the case while prices are above 1.2911.
The completed retest of the broken red down trendline happened early in the week, and after reversing higher, now we’re off to the races. We like the upside versus Thursday’s low, and we’re aggressively bullish USDJPY. Even a break of Thrusday’s low would only mean wave (ii)/(b) was still underway, rather than something more bearish. We like the idea of a move back into the internal trendline near 114.00 over the coming weeks, at a minimum.
By the way, in his latest monthly commentary, none other than Bill Gross mentioned that the next step for Japan is having the BOJ forgive, or grant a selective default, on some of its JGBs – something we’ve mentioned several times now. The fact that serious people are now floating ideas like debt forgiveness, means that that type of monetary madness isn’t far off. That would technically offer support to the yen, although it likely would only do that once all other options spell doom for Japan. Well, guess what, that’s exactly the scenario it faces over the next 5-10 years.
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.