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Major Forex Pairs’ Daily Context

Last week we covered Trader Skillset’s longer term views in the majors, which are basically unchanged this week. Now we’ll begin to drill down to the daily charts where we can identify more swing trading opportunities.

EUR/USD

Look For a Bounce to Get Bearish
Look For a Bounce to Get Bearish

Prices found support this week, arguably at the wave (iii) bottom. It’s entirely possible that the current bounce is only wave four of v, and that one more new low is needed to complete wave (iii). Either way, the current rally is likely a correction, with further selling to come. Notice that RSI fell below 30, so that’s “sustainable bear” territory, which means Momentum is confirming our Context. We like the idea of 1.30-1.31 being stiff resistance, and therefore, an opportunity for the bears within the next two weeks.

GBP/USD

Sell the Bounce Here Too
Sell the Bounce Here Too

Last week we wrote that prices were approaching a support zone for GBP/USD. The support around 1.6312 was former resistance that became support. With Monday’s gap below that support level, it has now become resistance once again. It seems likely that the current rally is going to fade after the wave .iv top, and a turn down to the 1.6000 area is next. Look for the breakdown point, last Friday’s close, 1.6323, to pose stiff resistance.

USD/JPY

The Train Has Left the Station
The Train Has Left the Station

It was a powerful week for the yen bears, and there’s no sign that the yen selling is complete. A pullback seems almost too much to ask for, but we’re going to see at least a pause in the rally as the trend matures. We’re liking the idea of further upside, since momentum on a daily basis is confirming the breakout. Near term 107.92 would be an ideal level to see the pause materialize.

AUD/USD

Prices Fall Hard, Top Count in Doubt
Prices Fall Hard, Top Count in Doubt

C waves are powerful, but the extent and momentum to the downside of last week’s suspected wave (c) decline leaves the larger count in jeopardy. We’re now going to need to see clear reversal action in order to believe that the decline is actually 2 or B. As an analyst, it’s easy to get married to a count; as a trader, there’s no reason for this. There’s other markets, other timeframes and capital at risk which are three reasons to make the market PROVE your count. Should wave 3 or C really be coming, there’s plenty of upside, so we can afford to wait for confirmation. What exactly do we need to see? A bullish candlestick reversal would be a start, then an impulse up into resistance around .9200. After those two items, then a corrective pause would create an ideal scenario. Until that happens, though, we need to tread with caution. Especially when we now consider the EUR/AUD count.

NZD/USD

Impulsive Decline Not Complete Yet
Impulsive Decline Not Complete Yet

One reason for believing AUD selling might go further is its commodity currency cousin the NZD. Waves are unfolding lower in a clearly impulsive manner, and any bounce can be sold. We’re looking for this extended wave 5 of (1) to stretch down to or below support for the prior fourth wave low at .8050. Not a whiff of divergence on RSI yet, although a brief snap back in wave (iv) should set RSI up to diverge into the final low in a week or two. NZD continues to trade heavy, which seems to confirm that a significant peak was struck at the recent top.

USD/CAD

CAD is in Trouble
CAD is in Trouble

When running flats are seen in a pattern, it’s because the underlying strength (or weakness) is too much for wave c to extend beyond wave a’s end. That was the case with USD/CAD, as the market showed its pent up demand this week. A pullback would be welcomed now, since the larger corrective pattern, wave 4, is complete, and new highs above 1.1300 should be seen. Look to align with the bulls, as the larger count is calling for much higher prices too.

USD/CHF

Swiss Franc to Weaken Further
Swiss Franc to Weaken Further

Notice the break of the down trendline into the wave .i top, and the subsequent corrective decline into wave .ii bottom that touched the top of that same recently broken down trendline. This is an example of “reverse polarity” where former resistance becomes support.  Prices have launched higher, and they have even been able to push above the trend channel. There’s been little to like about this pair for a long time (in either direction), but that may be just the reason for a big breakout trade to be seen here. We’re now in a third wave at multiple degrees of trend, so pullbacks are opportunities to get aligned with the bulls. It’s unlikely that prices will drop below former resistance, now support, at the .9155 area. A drop below there would be reason to reassess our count.

Until next time, happy trading.

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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