ZIRP to End, Long Live QE

Here’s our latest Elliott wave currency forecasts. It seems that the EURUSD chart dictates further USD strength, which likely means a not awful employment report this Friday, or any other terrible economic news. That in turn, allows the Fed to do a mini-hike of short term interest rates, which may wreck havoc on the repo and emerging market currencies. Let’s get to the charts.


EURUSD daily chart
Trendline Holds Near Term Key

We’ve left the top count unchanged from last week, despite the lackluster progress to the downside. It’s possible that prices are in a wave b of ii, which will require a bounce to complete an irregular flat for wave ii. But, there’s no reason to fight lower prices, especially with them below the short term down trendline. There is support in the 1.05 area, but we’re not expecting it to hold. The only real question in our mind, is when do we reach parity? We do need to allow for a sharp wave 4 at some point, since wave 2 was a flat, but with RSI in Sustainable Bear territory, we can remain bears as long as prices are below the wave 1 low.


GBPUSD daily chart
Join the Bears

There’s an abundance of technical evidence that the larger trend is still to the downside, and last week did nothing to alter that view. If correct, the series of ones and twos should lead to relentless downside pressure. That’s the view unless prices push past the wave ii high, which at this point seems unlikely. There’s little in the way of structural support above the April low, and we’re expecting that to give way. Remain bearish, near term, against the wave ii high, although ideally prices will remain beneath the down trendline drawn off the wave ((B)) high.


AUDUSD daily chart
Action Not Indicative of Third Wave Up

We’ve left the top count in place, although the confidence in it is subpar. The action on the push through the trendline isn’t awe inspiring, and a drop back below it would increase uncertainty further. We don’t yet have an impulsive move up from the wave ii low, and it’s possible that the alternate count is in play, with wave (iv) unfolding as a triangle. We’re trying to align the action here with what we see in the European crosses, and we have a hard time imagining significant upside in Aussie with the bullish dollar view in Europe.


NZDUSD daily chart
Further Mulling About

Same story in NZDUSD as AUDUSD. It’s hard to picture significant upside, especially on a break of the up trendline off the low. There’s still plenty of dollar strength out there, and despite the brief run into Sustainable Bull on the daily chart, the weekly picture remains challenging. Allow for further base building prior to an assault on the down trendline and a change in trend.


USDCAD daily chart
A Bullish Retest

We are aggressively bullish against the CAD. Friday’s test of the red up trendline and powerful move to the upside keeps the bulls on solid ground. We’ve put the target area of 1.3760-1.3850 which is the 100% expansions of the wave (4) and wave 4 corrections. For the wave 4 expansion, we drew it off of the wave 3 high, rather than the wave (b) of 4 high, so there’s potentially further upside. However, 400 pips would be just fine with us. We’re raising critical near term support to Friday’s low, and prices should have little trouble pushing to new highs for the move if our top count is correct. We’re eagerly anticipating a Sustainable Bull reading on RSI to confirm our thoughts.


USDJPY daily chart
Higher Seems Likely

We’ve done some work on the longer term USDJPY count, and we’ve come to the conclusion that there’s little reason to be yen bulls. While it’s still possible that wave I ended at the June 2015 high, it’s also possible that wave I ended back in December 2013, and we just saw a very shallow wave II because of the horrible underlying dynamics of the yen. If that’s the case, then we could see the “Alt 2” count play out which would leave prices in wave ((3)) of III to the upside. Given the recent Sustainable Bull reading (upper blue zone) there’s no reason to fight higher prices.

That’s especially true given that the BOJ will monetize the “Godzillaian” sized Japanese debt. For all of the problems we harp on US policymakers about, Japan is in a far, far worse situation with Debt-to-GDP at double US levels, and an unwillingness to do anything but sustain the status quo relating to monetary and fiscal policy. Short yen, is likely to be a top position for 2016 and beyond, since as the global economy slumps, policymakers in Japan won’t hesitate to drop yen from helicopters.

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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