Monthly Charts for Perspective, Daily Charts for Trading

Welcome to 2015. We’re going to provide our long-term, monthly Elliott wave counts along with our shorter term counts to start off the year. This will provide some perspective for some of the counter trend rallies being called for. In addition, we’re going to discuss the difference between analysis and trading.

Last week we wrote:

“But, should the US economy end up being weaker than expected, there’s little hope of higher Fed Funds, and QE could even come back into the fore. We’d bet that will be the justification for any dollar sell-off that happens, although given individual wave counts, we should likely pay more attention to each individual pattern.”

We were looking for signs of reversal in EUR, GBP, AUD and NZD; yet continuation in JPY, CHF and CAD. What we saw was an across the board rally in the dollar. Here’s a point we’d like to emphasize:  There’s a difference between calling an Elliott bottom, than there is in taking a trade with real capital at risk. The difference is between the theoretical and the practical. We were looking for a reversal in EURUSD last week, but we didn’t have any capital on the line – again, the bottom call was based on Elliott theory, not nearly enough to risk capital. Remember, while Elliott provides us the Context, we still need confirmation from Momentum, and finally, most importantly an actual Signal.

We did have some capital on the line long NZDUSD since its rally was a bit further along. But, fortunately we will be quick to take profits on a counter trend trade, such as NZDUSD, and look only for ideal places to reenter, like Laszlo wrote about here.

EURUSD – Monthly Bar

1.2000 Level Has Provided Support for Decade
1.2000 Level Has Provided Support for Decade

 

First, notice that the 1.2000 area has provided support going all the way back to 2003. Next, we’d like to point out that EURUSD has fallen for six consecutive months – longer than the consecutive monthly drop streak in 2008, and the drop in 2010 reversed in the seventh month.

EURUSD – Daily Bar

No Bottom Yet
No Bottom Yet

With Friday’s collapse, we’ve tweaked the count slightly, moving the wave (iv) label to the 12/16 high. It still leaves us looking for a bottom and turn higher, but like the chart says, “No bottom yet.” We’ll need to see a push back above the red trendline prior to having any confidence that a turn is underway.

GBPUSD – Monthly Bar

Support is Lower
Support is Lower

We are longer term bears in EURUSD, and we’re bearish here too – longer term. Nonetheless, prices have reached an extreme, and a bounce is due. We will be looking to turn back to longer term bearish into that bounce. Certainly the trend is down, though, and in the ’08 decline prices fell much harder.

GBPUSD – Daily Bar

Friday's Decline Keeps Trend Down
Friday’s Decline Keeps Trend Down

We’ve mentioned before how important Friday closes are, and that they generally indicate the direction of the underlying trend. The magnitude of the decline on Friday suggests a third wave at some degree, and we’re showing our interpretation. The trend remains down, support is lower, so we’ll just have to wait for some type of reversal prior to changing our view. Notice that Thursday’s rally failed right at the red down trendline, the level we indicated last week that prices needed to breech in order to change the trend.

AUDUSD – Monthly Bar

.8000 Level Has Been Significant for 20 Years
.8000 Level Has Been Significant for 20 Years

Prices reached resistance near the .8000 level several times from ’94-’96 and ’03-’04. Support was found at that same level in ’07 and ’10. From a monthly perspective that area should provide at least temporary support.

AUDUSD – Daily Bar

20-day Moving Avg Shows Resistance
20-day Moving Avg Shows Resistance

A snapback rally showed itself to start the week, but it failed right at the 20-day moving and mid-line of the down channel (dotted blue line). As such, the downtrend continues, although a bullish RSI divergence was present at Friday’s close. It’s still in sustainable bearish territory, though, so any bounce is likely to be temporary, and fully retraced. We’re looking lower prior to any significant reversal pattern.

NZDUSD – Monthly Bar

.7200-.7300 is Support
.7200-.7300 is Support

Similar to AUDUSD, NZDUSD is approaching significant support on a monthly basis (’95, ’03 & ’04 highs; lows from ’07, ’10’ 11, ’12 and ’13; and wave ((4)) extremes). Notice also, that prices have left long bottom tails each of the last three months – they are reasonably close to the monthly close back in September.

NZDUSD – Daily Bar

"Bottomed" Count Still Operative
“Bottomed” Count Still Operative

Wednesday’s close above the grey down trendline turned out to be a head fake. We thought the broken line would provide support, but the market had other ideas. Still prices remain well above the 12-9 low, and prices have been able to bounce from the .7700 area four times since September. We’re leaving the “bottomed” count as our top view, but it’s really about a coin flip with the alternate (A wave (iv) triangle with a fifth wave to come.).

USDJPY – Monthly Bar

Monthly is 15 Handles Above 20 Period Avg.
Monthly is 15 Handles Above 20 Period Avg.

Our long standing target for dollar/yen is at the prior fourth wave extreme near 150.00. That being said, nothing moves in a straight line, and this pair will be no exception. Resistance lies near 124.00, the apex of the wave ((4)) triangle. A pullback could see the 110.00 area, or lower, prior to seeing USD/JPY hitting our target near 150.00, on its way towards 200.00.

USDJPY – Daily Bar

Corrective Down = Trend Up
Corrective Down = Trend Up

We identified the three wave decline for (4), and there’s a another clearly corrective pattern that’s developed since the 12/23 top. We’re bullish against Wednesday’s low. We’ll look to manage our stop into new highs as described here. We could see prices as high as 124.00, or even higher. Nonetheless, it is a fifth wave (5), so we won’t want to overstay our welcome, and we’ll look to scale out of the position as it rallies.

USDCAD – Monthly Bar

Head & Shoulders Target is Higher
Head & Shoulders Target is Higher

We’ve had a long standing target for USDCAD near 1.2000. Prices continue to march towards that area, and any pullbacks should remain temporary.

USDCAD – Daily Bar

Trend Still Up, Indeed
Trend Still Up, Indeed

Prices tested support on Thursday, and then reversed hard on Friday, pushing towards our target of 1.1985. We think prices are near an internal third wave peak of (v), but that means that any decline is an opportunity for the bulls. Notice that RSI has also pushed to a new high for wave 5 of (3), which makes it likely our larger count is on track.

USDCHF – Monthly Bar

Franc Weakens Into Resistance
Franc Weakens Into Resistance

Prices have reached par, and the resistance from the ’08 and ’09 lows and ’12 high. Recall that the Swiss National Bank (SNB) has pegged the franc to the euro, and so the euro’s weakness means the SNB is printing francs to buy euros like the days of Weimer. We will be talking more about franc weakness in our soon to be released, “Top Ideas for 2015.”

USDCHF – Daily Bar

Closes Above Resistance Zone
Closes Above Resistance Zone

It’s hard to want to fight the up trend given the action on Friday, but we’re in a fifth wave. There’s only a small bearish divergence present, though, so the trend remains up until we see signs that it’s not. Given the weakness in the euro, the SNB is printing like mad to keep the franc weak, and that’s, in part, why we’ve seen the weakness here.

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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