We’re only going to address the elephant in the room (Trump election) to remind readers that social mood governs markets, and its process is endogenous. Meaning social mood moves of its own volition; it is not controlled by politicians. Trump’s election will create certain winners and losers, but it will NOT CHANGE ANY UNDERLYING TRENDS. Those trends were going to play out in a very similar manner regardless of who’s sitting in the White House. Global social mood is poised to turn lower at a very significant degree, based on our count for US stocks and currencies.
It’s time to baton down the hatches, because Trump’s election is a sign that the population has turned against status quo. Contrary to many people’s belief that Trump’s “pro-business” stance will be good for the Americans, in a vacuum, it would; but, we’re not in a vacuum. Any benefits the US economy will see, will likely come at the “expense” of China, or other economies. Let’s take a look.
We’re showing the completed triangle, and post triangle thrust that has begun in EURUSD. What wave (E) lacked in time, it certainly made up for in price, traversing 500 pips in a few weeks. We received a question from an observant EW practitioner that asked if it was possible that the euro is still in a triangle, with a wave D low about to be seen. The short answer is yes – it’s possible. But, the behavior post-Trump high suggests the thrust lower has begun. And, if indeed something else is taking place, the burden of proof is now on the bulls. It’ll take a move back above 1.09 for us to consider another count as more likely. The Sustainable Bear reading on RSI (lower grey zone), and lack of divergence into Friday’s low concur with this view. Keep in mind that the 100% expansion target of the 2015-16 bounce targets .9100 for EURUSD.
That said, a snap-back relief rally is due, and we’re not pressing the downside here. Allow for a bounce to develop, and look to be a seller, 1.750-1.0817 are stiff resistance.
Here too, there’s plenty of overhead resistance; and given the penchant for the BOE to keep monetary policy loose, there’s little reason to be outright bullish versus the USD. But, the pound has outperformed the euro significantly since the wave B of (4) low back in August. Still, the bounce from October is corrective, so we can look for prices to head lower from here. The last reading on RSI is Sustainable Bear, and the bounce has relieved the pressure, but not switched the market to bullish, so we can assume a new low is still in the offing.
Bigger picture, it’s possible that EURGBP is going to return to structural support in the .8100 area.
We’ve been thinking the next big move in AUDUSD is down based on the corrective action up from the wave 1 low, the impulse for wave 1 and the corrective bounce since the September 2015 low. We should allow for a slight bounce in wave (ii), but we’re not bullish here. Notice the Sustainable Bear reading, which concurs with our count.
Here too, prices held up longer than we thought, although they never did eclipse the September high. That subtle divergence potentially suggests further downside for NZD than AUD. Regardless, we have a Sustainable Bear reading here too, and despite the three wave look of the wave (i) decline, we’re bearish on the trendline break here. Significant support exists in the .6900 area, so we may see some temporary support around there, but ultimately, a new low is expected.
Similar to our challenge finding the wave 2 top in AUDUSD, we’ve been thinking that the rally up from the May low is a (B) wave. But, the top has been elusive. In addition, if AUD and NZD are about to collapse, will the CAD rally? If so, that presents a tremendous opportunity in CAD versus the AUD & NZD. But, keep in mind, that our counts could be off, and something else entirely may be taking place. If I had to bet, I’d suggest that one of two things are going to happen. Either something very negative with respect to global trade and/or an oil spike, if the above three charts are correct.
After reviewing the crosses NZDCAD and AUDCAD to see if they offer anything, we can certainly say that they don’t appear to be bullish, and there’s been significant downside reversals.
It’s been a long time coming. We’ve been waiting to turn bullish USDJPY based on the five wave rally up from the all-time low into the 125.85 high. The pullback for wave II returned to the previous fourth wave of one lesser degree, and retraced roughly 50% of the wave I advance. A simple 1.618 extension off the wave I and II levels produces a wave III target of around 150.00. A 100% expansion of the wave II decline produces a target of nearly the same level. So, that’s our target. And, if 150.00 seems extreme, keep in mind that Japan’s position in the world is quite tenuous – largest debt/GDP of major or emerging economies, largest central bank balance sheet expansion as a % of GDP of major or emerging economies, fastest demographic aging, significant oil importer and very reliant on global economy due to large exports.
Here’s what to expect over the next couple of years in Japan: capital controls, forcibly pushing Japanese savers into stocks and/or government debt and outlawing of large denomination bills. It ain’t going to be pretty.
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.