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US Dollar Trend is Unanimous

Markets are constantly changing. Currencies in particular move from a “trending” status, to one of “ranging” status quite often. Recall 2013, when with the exception of the yen and Aussie, currency market volatility was extremely low, and it paid to buy dips and sell rallies, as markets made little net progress. That changed in 2014 when the US dollar began a fairly historic run. Now that it’s virtually unanimous that the dollar’s only direction is up, it’s almost time for that trend to end, and another range type market to develop.

Let’s get to our Elliott wave currency forecasts to provide Context.

USDCAD (Weekly)

Weekly RSI at 88.62
Weekly RSI at 88.62

We’ve long been calling for USDCAD to rally in five waves to complete wave ((C)). And, now that USDCAD has blown past our targets, accelerating the past couple of weeks, the question is, “how high will it go?” Well, we’d first like to point out the perfect, break of the larger down trendline, and retouch of the topside of the broken line earlier this year. It’s a classic technical move that markets make (USDTRY recently made a similar move in the push up to wave 3 top and at the wave 4 low.).

Prices are now up into a resistance zone near the 2008 & 2009 highs, which is a natural place for prices to stall. Weekly RSI is now above 88, which is higher than it was back in ’08. While that doesn’t mean prices have to top now, it probably means something similar to late ’08:  Prices are near an extreme and due to range a bit before pushing to a final high. wave (3) of ((A)) was hit in October ’08 as global stocks were bottoming. Could wave (3) of ((C)) top as stocks top this time around? It’s entirely possible, for markets don’t forever stay in a state of trend. They vacillate between a state of trend, and one of a range bound market (like the range seen between the wave (3) and (5) tops of ((A))).

EURUSD (Daily)

First Sign of a Bottom
First Sign of a Bottom

Last week we mentioned that we thought the EURUSD decline was an “ending move.” Monday, it made a new bottom, but promptly reversed. Tuesday’s action saw follow through, for the first time, on a closing basis, since early December. The budding rally has yet to post a five wave rally, but it’s possible that one could develop, as long as last week’s low holds. Certainly, to see this market rally to touch the broken channel line, and 20-day moving average, is very possible, even if the larger trend remains down. We’re looking for a bit more than that, however, although we can’t rule out additional marginal new lows before the wave 2 rally begins. In fact, if our larger idea is incorrect, prices could continue down to support, and an equality measurement, near 1.03. But, given the fact that virtually everyone is on one side of the boat, a counter trend bounce in 2, before the resumption of the downtrend, is favored.

GBPUSD (Daily)

A Possible Bottom
A Possible Bottom

First, let me highlight the five wave rally in GBPUSD from last Friday’s low. Now, given that piece of evidence, along with some bullish divergences into the low, one could conclude that wave 1 is complete. However, the decline from the 1/14 high, into the low is in three waves. So, the wave .iv high either needs to be moved to the 1/22 high, or wave .iv unfolded as an expanded flat, with wave .v still underway. We prefer the “bottomed” count, as very, very few market participants are looking for dollar weakness. Also, consider the bullish divergence between GBP and EUR on Monday, when EURUSD made a new low, but GBPUSD didn’t. There’s a saying that a fractured market is an unhealthy one. Such happenings occur near turning points. A push past 1.5220, or so, could see an acceleration to the upside.

AUDUSD (Daily)

Nerves of Steel to Call a Bottom
Nerves of Steel to Call a Bottom

All right, so let’s be clear, we’re not sure the Aussie is near a bottom, but it sure feels like it. RSI is down near the to past low extremes, and both times prices spent weeks moving sideways to higher. One more washout new, early week low would put the finishing touches on the five wave decline from this summer. Look for structural support near .7700, and the lower channel line to offer some support. Then, the largest bounce since early 2014 should unfold.

NZDUSD (Daily)

Watch .7184 for Support
Watch .7184 for Support

We likely need to see prices a bit lower here too, before a larger bounce unfolds. .7184 is where the breakdown will be equal to the largest point of wave (iv) (wave w high to wave .b of y of (iv) low). In addition, prices have reached a cluster of trendlines drawn off of the July ’14 high, parallel line off of (4) low and channel line off of the wave (iii) low. Combined with the 2011 low, there’s at least a chance of a larger bounce developing. But, we’ll need to see evidence of support, an actual reversal signal and follow through first.

USDJPY (Daily)

Range Conditions Persist
Range Conditions Persist

Not much changed this week as USDJPY continues to coil. Our preferred count remains, up to complete wave D, down in E, then a terminal thrust. However, a case can be made that the recent coil is a triangle for E of (4) (a triangle to end a triangle). Or, should prices break the wave C low, look out below. A break of 115.85 would have us conclude that the entire wave I rally was complete, and that prices were returning to the 100-105.00 area, which seems almost unthinkable, doesn’t it? It’s not. The Wolf is about as bearish as possible when it comes to the yen, but it’s not likely to collapse in a straight line…at least, not until wave III begins.

USDCHF (Daily)

Blows Past .382, Stalls at .50
Blows Past .382, Stalls at .50

So much for the resistance at the .382 retracement. Now, we’ll see if prices are indeed rallying correctively in (B) or (2) as we think they are. Friday’s stalling bar indicates a possible loss of “market ownership” by the bulls. We’ll look for prices to fall in a small five waves, possibly finding support at the grey up trendline. Then, a corrective bounce will be a nice opportunity for the bears.

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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