The bullish case for the euro has taken a turn. We’ve long been expecting this corrective rally to fail, and it seems the time may be upon us. After wave (E)’s false trendline break, a choppy decline ensued. But, the rally up from the 1.1123 low is a clear three wave move. As such, we can play the bear case as the outcome could be asymmetric. In other words, the downside is significant if our bear count is correct. We are aggressively bearish, against 1.1284, looking for parity, based on RSI’s continued bearish profile. We continue to expect some bad news out of Europe, perhaps Italy’s insolvent banks, or Spain’s, or Germany’s…you get the idea, right?
I’m not sure what the bull case for the pound is. It’s below short term and long term support. The recent consolidation is clearly corrective, and the sharp break to the downside likely signals continuation. We believe the euro has more downside than the pound, but the pound’s action is clear. Remember, consolidation means continuation – in this case lower, targeting below 1.2500.
The only real question we have about AUDUSD is will prices bounce to give the bears another crack at it? It still has some support, but the RSI profile is bearish, and the action up from the May low is clearly corrective. That means we should see a return to that level, at a minimum. At least, that’s the case while prices are below the wave (ii) high.
What a difference a week makes. Prices fell hard last week giving a completed look to the rally up from last year’s low. The push above .7300 was a breakout, and the immediate failure looks to classify the move as a “false break.” But, prices are above support, and until the up trendline is broken, we could still see another probe higher. Given kiwi’s outperformance of late, it’s possible that the alternate count is correct, and that the rally won’t be fully retraced. Either way, though, it seems a decline towards the .6900 area should be the next move of significance.
It’s difficult to square the bearish counts elsewhere, and USDCAD’s chart. If our other counts are correct, we should see a rally here, perhaps a larger wave (B) move to the upside. However, the five wave decline from the high suggests prices should drop below 1.2500 first. I think we will continue to stand on the sidelines here, at least as long as the range isn’t broken.
Last week’s high is the dividing line between our bearish and alternate count. We have a clear three up from 101.20 as long as it holds. A push past it, though, would mean that the red down trendline will be broken as well. It wouldn’t eliminate the possibility of a new low for the move, but it would shift the probabilities in favor of the “bottomed” count. Given the insane nature of Japanese fiscal and monetary policies, it will come as a surprise to no one when the yen begins a death spiral (Well, it may come as a surprise to the economically ignorant quartet of Bernanke, Krugman, Abe and Kuroda.).
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.