Scenario Planning With Elliott Waves

EURUSD

EURUSD
Euro Still Vulnerable

There’s no change to our bearish view, and we can now lower critical resistance to the wave (i) low at 1.1386. If our top count, and bearish view, is correct, then prices are unlikely to see that level again until the ultimate low near parity. Look for the up trendline to provide some support, but rallies should be corrective.

From a bigger picture perspective, EURUSD has been trading sideways for quite some time. Rather than seeing this as a consolidation that will lead to much lower levels, we see this as part of a bottoming process. A new low near parity is still the call, but look for the decline to be a choppy one rather than a trending type of a move.

GBPUSD

GBPUSD
We Still Think Lower

Prices pushed higher intra-week, prompting quite a bit of doubt in our bearish view. However, Friday’s reversal leaves us with the impression that bears are still in control. Recall the importance we put on Friday closes, and see that traders were unwilling to go into the weekend long. As such, we’ll hold to our bearish view while prices are below the red down trendline. A push above that would mean that wave (4) up is still underway, although ultimately a bearish resolution comes under that count too.

The reason we keep these Elliott wave charts is to provide Context to a situation, to see if they “tell” us anything important. Sometimes, when in doubt, doing nothing is the only thing to do. In addition, we always like to think in terms of scenario planning with our top count. In other words, our top count is 60-75% likely in GBPUSD, but there are ALWAYS other counts. For instance wave C of (4) up, is 15-25% likely, while a (1) (2), 1 2, count up off the low is also a 5-10% probability (with others possible too (like a wave (4) triangle)). Thinking in this manner prevents one’s ego from becoming too invested in their top count, which as traders is important. Flexibility in one’s thinking, or scenario planning (what can go wrong with my trade), is the only way to go.

AUDUSD

AUDUSD
Into a Bottom

Aussie continues to trade heavy, registering Sustainable Bear readings on RSI (lower grey zone). We’re going to get a wave 2 bounce at some point, but we doubt it’s going to produce much of a rally given the nature of the decline. We think the larger downtrend has the bears in control, and any bounce is an opportunity for the bears. Unlike GBPUSD, Aussie’s picture is much clearer, and will likely continue to lead to the downside.

NZDUSD

NZDUSD
Lower to Complete Five Down

Notice the relative strength of NZD versus AUD. Prices are still headed lower, in our opinion, but kiwi’s ability to remain sticky to the upside likely means Aussie has further to fall. Still the action down from the wave (ii) high appears to be nearing a complete impulse, and the continued inability to close back above the up trendline is trouble for the bulls. Any move back above the .6860 level would be us on alert for something less bearish. Until then, remain bearish.

USDCAD

USDCAD
USDCAD Bounce Into Resistance

USDCAD didn’t stop at our cited “Huge Support,” but prices are comfortably back above it now. Also, notice how the wave (b) reversed up from just below that horizontal red line. We’re looking for further upside this week, to be followed by a small downward correction. Wave (c) will equal wave (a) at 1.3325, which is a common relationship in zigzags. Only a drop back below the 1.2837 level will call the rally into question.

USDJPY

USDJPY
Five Waves Up From the Low Are Complete

We are confident that an impulsive rally up from the low is complete. So, now, we should allow for a corrective decline which should retest the broken red up trendline. Then, we should prepare to short yen as a big rally will be possible. Some pundits have suggested that there was a central banker agreement at the G-20 meeting in China several weeks ago. And, with the recent G-7 meeting, perhaps it has been suggested that the Japanese should refrain from “manipulating” the yen weaker.

But, at some point in this currency war, it’s going to be every country for himself, and the Japanese will debase the yen substantially. When they do, we can look for something disorderly to the upside in USDJPY. Let’s err on the side of being yen bearish for the next decade or so.

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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