Let’s start with the big picture. We don’t think the dollar rally is over. We’re looking for one more drop below parity prior to a larger euro rally. A break of the internal trendline from the wave W and (D) lows, which would be back above last week’s high, would alter the short term picture, though. It that happens, we’ll have to await another reversal and follow through bar to the downside. That’s what we got on Tuesday and Thursday last week which gives the bears something to work with. So, while last week’s high hold we’re bearish looking for new lows. That potentially means the Fed will talk a tough game on higher rates, or something bearish out of Europe. Either way, the outlook is lower for EURUSD and higher for other risk assets.
Thursday’s reversal and Friday’s follow through bar gives something for the bears to work with too. That’s especially true since it happened from near the horizontal red line which was support over the summer and resistance during December. It’ll take a move above last week’s high to cast some doubt on our call. We do think the drop to new lows may be short lived, though, at least for the pound. We much prefer to be short the euro than the pound, although both seem likely to work lower.
The wave A decline is in five waves. Given the three wave decline from the wave (C) high, we’re likely to head higher. That may complete wave (E) of a triangle, which will be bearish, or it could be part of a wave (C) rally up towards .7800. Let’s look for an opportunity to turn bullish over the coming weeks.
Same outlook here for Kiwi as AUD. A dip will be followed by another rally wave up towards the .7600 area. We still think the entire structure up is corrective though. Global trade and commodities are likely in for a very tough period following the wave (X) high.
While a short term bounce seems likely to start the week, we are likely going to see a sharp downside reversal soon. Support near 1.2800 is our target for the end of wave (iii). Notice the Sustainable Bear reading (lower grey zone) on RSI into the wave 1 low. That suggests our larger count is correct, and that AUD and NZD are both heading higher as well. Pay attention oil bears.
When we say USDJPY is headed to 175.00 that’s likely a conservative target. Whatever problems the US has in terms of debt and a slow economy, Japan has in spades. Not to mention, it has a lack of natural resources, and an export dependent economy. That’s a recipe for disaster should a global trade war commence. Making America great, won’t benefit foreign economies who rely on it as an end market. Given that the BOJ already owns bonds and equities, is there any doubt it’ll up the ante rather than allow a real recession (depression?) to unfold? Look for the yen to be the “release valve” of decades of misguided policy decisions.
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.