Elliott Wave Analysis

[Trader Skillset]

NZDUSD Daily Wave Count

As the rest of the pairs were at least making some headway against the USD early in the week, the Kiwi continued to soften. While prices are at support near .7400, there’s low expectations that’ll hold – at least under the top count. Looking back at the bigger picture, it’s clear that stiff resistance held below .7800, after three attempts to push through, and the action up from the low is choppy and overlapped. That’s the hallmark of corrective action. In addition, notice that daily RSI failed to reach into “Sustainable Bull” territory, and that there were two bearish divergences into the wave iii and v of (c) tops. So, we’ll continue to prefer the bearish view, at least while prices remain below the .7600. Above there, and it’ll depend on the structure of the rally that will tell the tale.

 

[Trader Skillset]

USDJPY Wave Count

The long sideways action continued this week, although the structure appears to hold a bullish resolution – even if it is a terminal thrust higher. Critical support for the bullish outlook is 118.49. RSI has been making higher highs and higher lows since the wave C bottom which is additional bullish evidence.



We have the makings of a breakout on tap next week, although in Thursday’s and Friday’s “risk on” the USDJPY failed to participate meaningfully. Regardless, the action is bullish with short term support at 119.06; and, a break of that level will cast doubt on the bullish view. Until that happens, range conditions still apply, although that could change in a hurry. Perhaps some more inane ideas from Kuroda-son or Abe will allow the yen to fall versus the dollar pushing USDJPY to its final wave I top.

 

[Trader Skillset]

USDCAD Wave Count

We continued to see choppy action from USDCAD, although it did find support at the up trendline of the base channel again this week. Perhaps that completes a double zigzag down for wave A of (4), which would allow for some dollar strength up in wave B. We do view the rally in crude from the low as corrective, so seeing some CAD weakness does make sense. That’s why we’ve added the wave (4) label as a tentative count. Ideally, we’d prefer to see a much larger correction for wave (4) prior to a new high. But, recall our pointing out the similarity in USDCAD’s rally to that of 2008, near the manic peak of the advance. If you step back and take a look at a weekly USDCAD chart, there’s reason to expect a bounce. We won’t be fading any near term strength here.

 

[Trader Skillset]

USDCHF Daily Wave Count

Prices fell as expected to surpass the point where we had two equal waves down from the high near 1.02. The two day bounce from the low is sharp, but so far not in five waves yet. In addition, it’s below the wave (i) low at .9495, which is critical resistance. RSI did drop into “Sustainable Bear” which now means we’ve had four straight contradictory signals. We do like the idea of some further franc strength, prior to a more lasting bottom, though, as long as prices don’t push beyond the down channel.

It’s hard to want to like the Swiss franc too much, though, given that when it abandoned the peg (after professing it wouldn’t), it followed that up with some record US stock purchases.

Call me naive, but what in God’s name are central banks buying stocks for?!?! Look, I understand that we all now live in this Keynesian/Monetarist “paradise,” where every central bank attempts to print its way to prosperity; but, doesn’t it seem even the slightest bit silly to the Bernanke’s and Draghi’s of the world that this is the state of serious monetary policy? It wasn’t that long ago that central banks were actually managed by the “adults in the room,” like William McChesney Martin, whose job it was to “take away the punch bowl just when the party gets going.” Today’s central bankers act as if their only job is to spike Gatsby’s punch bowl again and again to ensure the Hamptonites’ party lasts for just one more hour.

Nonetheless, we’ll stick to the charts for our trading, even as we lambaste the monetary and fiscal alchemists until their voodoo ZIRP, NIRP and QE policies are tossed into the dustbin of history. Mark my words, it won’t be long (maybe 10 years), until the current excessively loose monetary policies that are common today are mocked and derided with the same type of certainty that many in the mainstream reserve for the “Austrian School” camp today. Happy Trading! The Wolf

 

[Trader Skillset]

EURUSD Wave Count

Last week we mentioned that there was a possibility of a push higher to complete wave C. An astute reader who is familiar with the Momentum Zone Principle pointed out that the bearish divergence we pointed to on last week's daily chart occurred from the "sustainable bull" zone (h/t Ad). That's something we neglected to mention, and it indicated this week's rally to a new high. But, now, five up are closer to completion, and there's resistance from the prior fourth wave triangle and down trendline resistance. Ultimately, we think prices will push through this level, or at least test it again, but not before pulling back in a (B) or (X) wave, according to our top count.


On the shorter term chart, we can count the subdivisions of the wave C rally, and there's even five waves up seen from the wave (iv) low. A break of the up trend channel will mean that prices have begun the downward correction. Short term bearish divergence, from below the sustainable bull zone is apparent, and with the relief rally having taken off some of the rampant bearishness towards the euro.

 

[Trader Skillset]

GBPUSD Wave Count

One reason The Wolf loves currency markets is that they typically breath - up, then down, in a "trade-able" manner. With that said, last week's clear identification of the three wave decline absolutely nailed the call for a rally. We were expecting a new high, at a minimum, and we sure got more than that. Now, prices are approaching a top at a combination of resistance with the extreme of the prior fourth wave and structural resistance from the wave (1) low congestion area. Notice, though, that RSI is in sustainable bull territory, which fits with our call for a (B) wave decline, followed by another push higher in (C).



Prices seem intent on pushing to a new high, as evidenced by the lack of a full five wave count up from the wave 4 low, as well as the fact that RSI was still in sustainable bull territory into the latest top. Wave (iv) may become more complex, but one more wave up in (v) is needed before the larger correction can begin. Similar to EURUSD, we should see the up channel provide support, and once it's broken, that will mean the corrective action is underway. The five wave rally for GBPUSD, though, means that it's tracing out a zigzag up, as opposed to the EURUSD flat or combination. This may provide us an opportunity in EURGBP as well.

 

[Trader Skillset]

AUDUSD Wave Count

The key observation here is the overlapped nature of the rally since the wave A low. Prices reached into the prior fourth wave of one lesser degree last week, only to reverse lower on Thursday. Prices were unable to reach the 38.2% retracement level, though. Also, there was a small bearish divergence into Thursday's push, so the weight of evidence suggests we be on the lookout for a turn lower.



When new to Elliott, I only thought in fives and threes. The first time I read about "sevens, nines and elevens" it seemed awfully confusing, and that Elliotticians were grasping. But, when it was explained that a seven wave rally was ABC-X-ABC, a nine wave rally was an impulse with an extended wave (1, 2, (i), (ii), (iii), (iv) (v), 4, 5)), and that eleven waves was a triple zigzag or combination ABC-X-ABC-X-ABC, it made much more sense.

On the 240-minute chart, we can see the corrective nature of the rally, but we do still have higher highs and higher lows. It'll take a break of the up trendline and the wave b of (z) low to really cement this count.

 

[Trader Skillset]

NZDUSD Wave Count

Kiwi failed to hold .7400 support initially, but the latter week rally was impressive. Notice that prices bounced three days in a row near the broken trendline retest. That rally appears impulsive, while the decline from the wave B high appears corrective, leaving the top count under duress. The alternate counts show how we'd account for a rally in NZD, although with the rest of the complex looking for a bit of weakness versus the dollar upcoming it's hard to imagine Kiwi being able to push much further past the wave B high.



The very short term trend is up, and we can look for prices to rally early in the week based on the non-impulsive decline, impulsive bounce and choppy decline from the (a) or (i) high.

 

[Trader Skillset]

USDJPY Wave Count

USDJPY failed to follow through to the upside this week, even as other "risk assets" were able to. But, keep this in mind: during the past two months, virtually all currencies have gained ground versus the dollar, while the yen has been basically flat. We'll stick to the top count as long as prices remain above critical support near 118.61.


The top count is still near term bullish, but the action up from last week's low isn't clearly impulsive. That means we need to give some credence to the alternate count which suggests that wave E is itself unfolding as a triangle. A push above 120.50 is likely to usher in significant buying pressure, but that remains elusive. While daily RSI remains above "sustainable bear" the shorter term chart does suggest weakness is more probable. That leaves us flat, looking for an opportunity to turn aggressively bearish.

 

[Trader Skillset]

USDCAD Wave Count

Prices staged a two day reversal, and RSI did show a minor bullish divergence into the low. However, we continue to believe in the top count which suggests a larger downward correction is necessary similar to the euro and pound.


It's hard to get too excited about the rally attempt so far, but a push above 1.2200 will help confirm our interpretation. Still resistance exists in the 1.2400 range, and we'd imagine bulls will be quick to exit USDCAD on a rally into that area. In addition, short term RSI isn't suggesting anything more than a corrective bounce is due, and that's what our count suggests.

 

[Trader Skillset]

USDCHF Daily Wave Count

No new low was seen this week, so it still seems likely at least one more drop is due to complete wave 3 or C. Then, we can turn our attention to the bounce and the .9490 level. A move back above there would mean the franc was about to weaken dramatically.

That actually makes more sense given the fact that the SNB has printed more francs relative to the size of its prior balance sheet, with the exception being the Fed (see chart above). There really shouldn't be a "flight to quality" into a central bank's currency that is printing it to buy stocks and such. The Swiss were the last central bank to officially abandon gold backing, and there still seems to be a reflex return to the franc in times of stress. The reality is that the franc is no longer "safe" given the policies of the central bank and the size of its financial sector.

 

[Trader Skillset]

USDJPY Wave Count

We’ve made no secret of our detest for Japanese monetary and fiscal policies, and the ultimate outcome for the yen. There’s little doubt the yen will ultimately end up in the currency dustbin of history, along with the Zimbabwean dollar and Venezuelan bolivar (The Wolf correctly called for Venezuelan hyperinflation in January 2010.). In fact, a currency fund manager friend of ours has a price target of infinity for USDJPY. While that may be overstating things a bit, he’s not far off.

There are consequences of running 9 rounds of QE and leaving overnight rates at sub 1% for 20+ years. Those consequences aren’t being seen in the Japanese Government Bond market, because the BOJ is effectively a willing buyer for any and all JGBs. The result is that the yen will fall victim, but as we said back in January, nothing moves in a straight line. Now that the mainstream news has caught on to this four year yen decline, it’s time to start thinking about a small bounce in the yen (fall in USDJPY).

It’s too early to call the top, but sentiment against the yen has now tilted towards extremes. It’s almost time to be looking for a top and a turn lower.



So, we nailed the bullish call here last week, and we’d like to thank the BOJ for its continued monetary insanity. Like we said before, oftentimes, thrusts from triangles can look like one wave, rather than a “normal” five wave move. I’d say the top counts are about 50/50 likelihood, but regardless, we can raise the critical support level to the wave (i), or 1 high, at 121.48.


We would like to point out the fact that RSI on both the daily and 240-minute charts followed prices to new highs, and in the process have hit “sustainable bull” territory. That means that any decline is best viewed as corrective action. Not coincidentally, our Elliott wave count is still pointing higher too. We do believe that this rally won’t see an extension, but it’s still a possibility, which is why we have left two degrees of labels on the rally up from the wave (4) low. We can look to be a dip buyer early in the week, against the wave (i) high, although we’ll be nimble at this point in the trend. Price targets were discussed last week.

 

[Trader Skillset]

EURUSD Wave Count

We were looking for a spot of weakness to complete A, to be followed by a B wave rally, and that’s exactly what we got. Look for stiff resistance from the wave (a) low up to the wave (b) extreme, though, and we’ll look to be sellers of euros sometime next week. This pair, however, does seem to be ranging now.



Notice that the 1.1050-1.1100 area has been pivotal since the wave 3 of (5) low back in January. Each time prices crossed that area, it has proved to be support (wave 3 of (5) low, wave iv of (iii) of C low, and wave (a) low) and resistance (wave A high, a of (b) of B high and wave (b) of B high). We’d imagine, it’s going to prove to be resistance next week, and we’ll look for some shorter term downward reversals once prices reach the 38.2% retracement of the wave A decline. Do notice that the short term RSI did reach into “sustainable bear” territory into the wave A low. That means, a bounce should be corrective; and, don’t forget, there is a bearish alternate for EURUSD that calls for new lows directly.

 

[Trader Skillset]

GBPUSD Wave Count

After the five wave rally for (A) we were anticipating a three wave decline that would retrace roughly half (plus or minus 10%) for wave (B), which would find support in the previous fourth wave of one lesser degree. Prices have fallen into that range now, and if our top count is right, we should be seeing an impulsive turn higher from near current levels. RSI analysis supports this idea in that it hit sustainable bull territory into the wave (A) high, and is now in “bull support.” As long as it remains above “sustainable bear” (the lower grey zone), we’re sticking to our top view.



Ideally, we’ll get an early week bounce that takes RSI up, and then a final low near 1.5240, with a bullish RSI divergence from above sustainable bear territory. If we get that, and then an hourly bullish reversal, we’ll look to get on board a push higher. A push above the wave A low, would likely mean the upside reversal was taking shape.

 

[Trader Skillset]

AUDUSD Wave Count

The small second wave correction is the bane of existence for the Elliott wave analyst. Wave (ii), in fact, did retrace a Fibonacci 23.6% of wave (i), but it looks barely noticeable on the daily chart. Nonetheless, the trend is down, and we’ll be looking for a small bounce from support (current levels) to allow us to join the downtrend. We’ve added the alternate count calling the recent peak wave (iv) of A, which would then allow for a larger wave B bounce. We do favor the top count still, which suggests prices are in wave C to the downside now, or perhaps tracing out a more complex B wave.



We can use the wave (i) low as the critical resistance for our top count, and should we see prices above the .7700 area in the wave iv bounce, there’s an opportunity to join the bears. Notice that the 240-minute RSI is firmly in support of lower prices, and that any bounce is likely a correction. Look lower.

 

[Trader Skillset]

NZDUSD Wave Count

As much as the Kiwi was outperforming into late April, it has totally flip-flopped with its current under performance. RSI is into sustainable bear territory which suggests lower still is in the cards. We can lower critical resistance for the near term count to the wave (i) low, although, realistically, prices should remain below the down trendline as well. Also, notice the break back below the long term down trendline, which was previously support (at the wave (i) & i lows).



Similar to AUDUSD, the trend is lower, and overhead resistance is substantial. The .7200 area should prove to be stock full of sellers. It’s possible that we’re looking at an ending diagonal down from the wave B high, since the internal count for wave (i) is a bit clumsy. That would actually mean a slight overlap wouldn’t derail another probe to new lows. Under that view the wave ii high is a better critical resistance. Notice the push into sustainable bear (lower grey zone) on RSI on the 240-minute chart as well.

 

[Trader Skillset]

USDCAD Wave Count

So, we mentioned last week that we’d be quick to change to the bullish alternate if five waves up present themselves, and that’s just what happened. Now, we can look for a three wave decline to turn aggressively bullish against the wave (4) low. We’ve mentioned before the similar nature of the current rally to the 2008-09 top, and the analogy is still applicable. We’re not sure how much more gas is in the tank for wave (5), but it seems new highs are in store. Notice how prices found support at the base channel up trendline after a brief stab below it at the wave (4) low. They had no trouble pushing through resistance from the former support area (now resistance) from the wave (iv) of 5 of (3) lows. Ideally, prices will remain above the up trendline now into the wave 2 low. Lastly, while wave (4) seems shallow, it did retrace more than 23.6% of the wave (3) rally, and considering wave (2) retraced about 78.6% of the wave (1) rally, it’s proportionate in its alternation (i.e. wave (2) sharp, wave (4) sideways/shallow).


Sometimes it can be difficult to discern between a three wave move and a five. In such cases, a trend channel can be of use, since five wave rallies should allow waves three and five to connect with a parallel with waves two and four. We can see that on the short term chart, and now we’ll look for a move back down towards 1.2300 to complete wave 2. Do notice that RSI reached into sustainable bull into the wave 1 top, but failed to do so at the suspected wave (b) peak. We wouldn’t be surprised to see a shallow wave 2 pullback, so we’ll be looking for an hourly reversal bar along with a follow through bar to get bullish.

 

[Trader Skillset]

USDCHF Daily Wave Count

Prices overlapped the wave A low as expected, although the five up for (i) isn’t quite as clean as in USDCAD. We’re sticking with the near term bullish count, although we’re a bit lukewarm about it. A push above the wave (i) high would mean bulls were firmly in control near term. The ambiguity of the larger count, though is a bit troubling for swing positions, especially given the Jeckl/Hyde nature of the Swiss National Bank. Does it want a strong or a weak currency? Why did it abandon printing francs to buy euros, only to buy stock shares of stock at all-time highs? We have noted previously that massive expansion of the SNB’s balance sheet, which does support the idea of a lower franc, though, considering the weakness we’ve seen in the yen on an equivalent “printing” basis.

 

[fxstrategist]

waves

Very deep analysis, interesting.

 

[Trader Skillset]

Very deep analysis, interesting.

Thank you, I hope it's helpful.