We know that the rally from last March’s low was in three waves, as was the decline into the December low. Given that, we’ve been looking at either a flat or a triangle. While the flat interpretation isn’t impossible, it is unlikely while prices remain below the wave (C) high. We’re looking for one small wave higher early in the week to complete this year long continuation pattern. Continuation meaning that ultimately prices are headed lower, to below parity. Our best guess is that there’ll be some dramatic happenings (Greek/Portuguese/Italian debt issues perhaps?) over the next few months.
However, once prices break parity, we’ll be looking for a bottom, and then a substantial recovery back towards 1.20 or higher. Remember, triangles preceded the terminal wave of a move, and we see this EURUSD triangle as a Terminal Set Up.
The yen’s triangle versus the USD is actually complete, we believe. We are aggressively bearish versus last week’s high, although it’s still possible that wave (e) is underway. Even if prices push past last week’s high, we’ll be looking for opportunities to be bearish unless an unexpected rally past the wave 1 low takes place.
That being said, given our confidence that Japanese policy makers intend to “print or die” we’ll be looking to be bearish yen for years to come past this near term “yen strength” play.
Sometimes markets turn when seemingly everything is against them. That seems to be the case in the pound, although just how much of a bounce is underway is undetermined at this time. Allow for an early week rally to put the finishing touches on wave 3/C, which likely finds resistance near the lows of waves 3 and 5 of ((A)) touched last spring. Then, the next pullback will be key: as in, will it hold above 1.4284 (the wave 1 high), or will it leave a three wave rally in place by overlapping 1.4284? That’ll be for next week or the following’s discussion.
The violation, and weekly close above, the red base channel (along with wave 3/C pushing past the equality measurement with wave 1/A) suggest we have an impulsive advance underway from the low. That suggests the 1.618 expansion is a good target for the current up move, followed by a wave 4 decline which will hold above the wave 1 high. Use corrections to become bullish, rather than as an opportunity to press the short side.
Kiwi lacks the strength of the AUD, but last week’s decline appears corrective. But, we’re still below former peaks in October and December, and the action up from the low in August isn’t inspiring. But, we are above the down trendline, and prices touched the broken line on a corrective decline this week. There still hasn’t been a Sustainable Bull reading since the Sustainable Bear one in January though. We’d prefer to use the euro (then kiwi) for “long dollar” trades, and AUD (then GBP) for “short dollar” ones.
Wave A looks fully formed, so a bounce in B is due. A small bullish divergence developed on a daily chart, which is more visible on the 240-minute view, and should allow a bounce to begin this week. That bounce will be counter trend, though, so trade accordingly.
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.