Pretend for a moment you know nothing about the pair above, and instead focus on the lack of an impulsive advance from the December low, and the broken trendline off the low. Both of those would be bearish by themselves. Combine that with a retest of the broken trendline, a very common occurrence, and we’ve got little going for the bulls. In addition, RSI registered Sustainable Bear readings in May, and the bounce failed to change that. Now, with RSI pressing lower, we’re sticking with the bearish call, for new lows and parity.
The chart above is The Wolf’s GBPUSD chart from our 2015 Elliott wave outlook. Not bad. The next weekly chart below is from an update in March 2015. It’s easy to see we’ve been bearish, and there’s no reason to change that view now.
Below, we’re showing an updated view on a daily chart for GBPUSD. The degree is off one degree, but regardless, prices should drop into a wave (3) low at some point. Keep this in mind, though. Wave (2) above was “sharp” so its corresponding wave (4) (wave ((4)) on the chart below) will be flat, likely a triangle. So, we still should be looking to sell any rallies. The daily RSI agrees with that as does the weekly RSI above which both have registered Sustainable Bear readings.
The bearish count might still be best, but we’d prefer to be short the EUR and GBP versus the USD rather than AUD and NZD. Remember, it’s usually best to be long the strongest markets and short the weakest ones, not the opposite. This is a point reinforced time-after-time by super successful traders from William O’Neil to Stanley Druckenmiller, and a point driven home in Hedge Fund Market Wizards by Jack Schwager, one of the titles The Wolf perused on vacation last week.
A break of the down trendline likely means wave 2 is still ongoing, or something else entirely. But, we prefer the larger bearish case based on Aussie’s longer term down trend. That said, we could make the case that wave (A) ended at the Jan ’16 low and wave (B) needs another five up before completing. One of the Wolf’s fundamental fund manager friends is quite bullish both AUDUSD and NZDUSD which does give us a bit of pause in leaning into them both here.
Brazil is the best performing equity market of 2016, and Kiwi is outperforming as well. A subtle “inflation” trade has been going on since February, and although NZDUSD’s RSI is diverging into Friday’s highs, it’s likely too early to turn bearish. Especially with the out performance relative to the Euro crosses and even AUD, there’s little reason to fight the up trend here.
USDCAD continues to struggle in a ranging market, and that’s likely to continue. A push higher will likely complete B, and then prices will sell off in (i) of C, but bounce in (ii) of C. So, it continues to be a market gaining or losing very little ground directionally for the next several months.
With Sustainable Bear readings abounding, that means any bounce will likely be corrective. So, yen bulls may have one last laugh before the trend turns strongly the other way. It seems unlikely that USDJPY is going to spend an extended period of time below 100.00 so bears on USDJPY beware. Keep in mind that next up for Japan is either helicopter money or some other outright monetization now that negative rates have proven themselves to be totally ineffective and asinine. But, perhaps the charlatans at the BOJ will keep trying them out, or going even NIRPer. Regardless, once the red down trendline is broken, USDJPY is likely headed to 150.00 or so.
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.