Elliott Wave Analysis

[Trader Skillset]

USDCHF Daily Wave Count

USDCHF is in a similar position to USDCAD. The action up from the wave (ii) low isn't a full impulse yet, although it does look like there's a clear third wave impulse internally to the rally. So, we await clarification here, although we still can't rule out a deeper wave C. If indeed we see a minor crisis develop as a result of Greece on Monday, it seems like the franc is set to suffer some c consequences rather than get a "flight to quality" bid. That would certainly be a change from the past, and potentially speaks to the absurdity of having the Swiss national bank, or any central bank own stocks.

It does seem that the world's monetary authorities have taken currency weakness to its logical extreme - buy anything with currency conjured out of thin air. However, if the intent is to grow an economy, you'd think that the geniuses running central banks would understand that buying a stock in the secondary market has NO impact on the company or economy. It simply exaggerates an existing trend. This is the reason that central banks and governments should allow private currencies; they should not be in the business of demanding by fiat that its citizens use one particular currency over any other.

Happy Trading!

The Wolf

 

[Trader Skillset]

EURUSD Wave Count


We mentioned the red up trendline last week, and that it was critical to the near term bull case. Since prices have yet to break it significantly, we're sticking with the idea that prices will move up in wave (C) or (Y). But, we must remember that the rally up from near 1.05 to the wave (A) or (W) high is not an impulse. As a result, the one larger degree trend is down. As such, we don't want to fight lower prices on a break of the up trendline, we only want to wait an upside reversal. Do notice that daily RSI continues to suggest that prices are either range bound, or have some upside potential left. One count we haven't mentioned is that wave ((B)) could be taking the form of a triangle, which would leave both bulls and bears frustrated for another month or two. The big theme we continue to believe in, though, is that there is no "policy divergence" (i.e. The Fed isn't raising rates because the US economy is too weak.).

But we're traders, not pure Elliott analysts. So, we're going to step aside on a break of the wave (ii) low and await a reversal back above trendline resistance. There's plenty of upside to be had here to await further clarification. Notice that the shorter term RSI is telling a bearish picture, and given the Greek vote, and most uncertain outcome, there's risk to our bullish call. We'll be here early next week for a short update if we see something worth mentioning, like last week.

 

[Trader Skillset]

GBPUSD Wave Count


The story is similar, but more bullish here in GBPUSD, as told by daily RSI. Notice that into the wave ((A)) low RSI had a bullish divergence, and it was above the "Sustainable Bear" territory (lower grey zone). Then, into both the wave (A) and 3 highs it made it to "Sustainable Bull" territory (upper blue zone). That has us looking at action down as a correction, and since prices are near trendline and structural support (Nov '14 lows & (4) high), this is a natural level to look for a turn back up. In addition, there's no default risk here, so the pound is likely a better pair to play for a reversal of the "USD policy divergence" idea.

While prices are below the short term down trendline, we need to allow for a deeper wave 4 or potentially wave (B) correction. But, with support so close, we're still going to maintain our near term bullish outlook, although we're not likely to put any capital behind such an idea until we see a push above the down trendline.

 

[Trader Skillset]

AUDUSD Wave Count


Support once broken, become resistance. As such, there's plenty of reasons to remain bearish AUDUSD. The count isn't complete, yet, and the Sustainable Bear reading on daily RSI keeps things pointed lower down under. Perhaps the commodity bear market keeps Aussie rates heading lower, and thereby, eliminating or reducing the interest rate differential. For years, both Australia and New Zealand have had significantly higher rates than the rest of the developed world, in part based on their current account deficits (i.e. they needed to keep rates high to attract foreign capital). With the bulk of Australia's exports being commodities (coal, iron ore, copper) that bear market is extolling its toll in the forex markets.

We've added some short term labels to illustrate the potential downside here. Even if the AUDUSD decline is terminal, a .618 extension off the wave B high points to the .71 handle. The only action that will give us pause, and suggest something less bearish would be an impulsive rally back above the down trendline and .7633. Until then, continue to look lower.

 

[Trader Skillset]

NZDUSD Wave Count

Here too, daily RSI is in Sustainable Bear territory, which means any bounce is likely to be corrective. Still, even a wave (iv) bounce could see a 250 pip rally. Do keep in mind, though, that a Sustainable Bear reading doesn't mean rallies can't happen; it only means that a new low will be seen in excess of 75% of the time.We're not looking to play a bounce here, instead, we'll be looking to sell the next rally for a trade into the wave C low. Look for the down channel to provide resistance, and the lower line to provide support. In addition, the 100% expansion of the wave B rally is just below current levels.

 

[Trader Skillset]

USDJPY Wave Count


Even with the sell off from the high, USDJPY is still above both its up trendline from October and the breakout level (wave (3) and B of (4) highs). Daily RSI remains above sustainable bear territory, and given that the last reading was sustainable bull on both weekly, monthly and daily charts we're sticking with the idea the current action down from the top is corrective. However, the yen has been used as a "funding vehicle" for carry trades around the globe - from John Mauldin and Kyle Bass' yen mortgages, to Japanese housewives using AUD and NZD deposit accounts, and people coming to the realization that Abenomics outcome is a decimated yen.

So, many people agrees that the yen's future is doomed. We agree too, but first, we think there is going to be a downward correction towards the 105 level. But, that's only after one of two things happens: 1. A new high for wave 5 of I is seen, or 2. A break of the up trendline and the wave 1 top occurs.

Notice that last week's late rally failed right at the down trendline. A break of either trendline will likely point the direction of trade for at least a week or two. Beware a pop and drop after a new high is seen, though, as prices might not have enough left in them to reach the 127 level.

 

[Trader Skillset]

USDCAD Wave Count


USDCAD bottomed near up trendline and Fibonacci support, and the rally since looks like the resumption of the uptrend to new highs. Critical support is now the wave 2 low, as a break of that level would put us well below trendline support. Until that happens, we're sticking with the bullish view, and notice that RSI is very near Sustainable Bull territory. Any weakness is an opportunity to join the bulls.

From a shorter term perspective we can see that prices shouldn't overlap the wave i high. We're looking to join the bulls on any pullback, as risk is well defined and the upside is substantial. With last week's break down in oil, the commodity sensitive loonie (along with AUD & NZD) are looking weak, possibly to carve out substantial lows/highs.

 

[Trader Skillset]

USDCHF Daily Wave Count



Here's what we know:

The decline from the wave ((C)) high is not impulsive.
The pair has been range bound since the "unpeg" low.
The SNB is willing to do just about anything to discourage inflows.

That's all we really know. There is a budding up trend, but there are easier ways to play a dollar rally if that's what's going to cause the rally here (AUD, NZD & CAD). The reflex seems to be to buy francs on any "negative" Greek news, even though the franc is very far from a "hard" currency these days. It'll take a break of the up trendline, though, to alter the near term bullish view.

Happy Trading!

The Wolf

 

[Trader Skillset]

GBPUSD Wave Count

The pound looks much better versus the dollar than the euro. In fact, this last week's rally leaves a clear three wave decline from the wave B top. As such, we've switched the alternate count to an even more bullish take than the top count. It suggests that wave (B) is complete in an expanded, running flat. As Laszlo writes in that post, running flats occur in markets that are, "on the move."

So, under both the top and alternate counts, we're looking for a push above the wave B high from above the wave C low.With the way stocks reacted to the Greek deal and Chinese stimulus this week, we're don't foresee immediate significant USD weakness, so the top count remains best. But, we're not fighting higher prices here, especially given RSI's turn up from above the Sustainable Bear zone.

Here you can see the three wave, corrective decline from the wave B top into the wave C low. While the top count should push higher from above the wave C low, the alternate count suggests we're already in wave (C) to the upside. Certainly, if the Fed is going to forgo a September rate hike because of weakening economic numbers, it seems traders will use the pound to challenge USD strength rather than the euro. This can already be seen in that prices remain substantially above the May low here in GBPUSD, while there near it in EURUSD (see below).

 

[Trader Skillset]

EURUSD Wave Count

The idea of a euro selloff a few weeks ago was based on contagion from a Greek default. But, that theory was deemed false as EURUSD sold off this week on news of a Greek "deal." So, apparently the euro will sell off on either a default or deal, right? Certainly the consensus call is for further euro weakness, and the fall back below the red up trendline drawn off the wave B low allows for this. In addition, the repeated breakdown from the longer term black down trendline speaks to a market whose trend is still down.

But, daily RSI has still not entered "Sustainable Bear" territory (lower grey zone), and prices have reached near the 1.08 level where prices bounced in May. An ideal scenario for us next week would be to see a spike lower followed by an immediate reversal. In order to put capital at risk on a swing basis, though, we're going to need to see at least a daily candlestick reversal that has an internal five wave move and three wave decline.

Unlike daily RSI, 240-minute RSI has reached Sustainable Bear territory. That does give me pause with respect to the bullish outlook, since we could even see a test of the 1.06 area prior to a return to 1.14 in a combination or flat for wave ((B)). Wait for evidence of a low, such as the aforementioned five wave rally and corrective decline on an hourly chart.

 

[Trader Skillset]

AUDUSD Wave Count

Our preference is that the commodity currencies should be near to carving out a significant bottom. But, the action doesn't count complete yet, and daily RSI remains in Sustainable Bear zone. That means odds favor any bounce being a correction, which would at least need a retest of the low prior to any sustainable bullish action. We remain bearish per the top and alternate counts.

Ideally, we'll get some early week strength to complete wave iv of (iii). Prices should remain below the wave (i) low prior to completing wave (v) down, and only a rally back above that would suggest something less bearish was underway (such as an expanded flat for wave B, which would make the current low a (b) of B low). Without something clearly impulsive to the upside, though, we'll ignore the fact that 240-minute RSI is diverging in a bullish manner. Use rallies as opportunities to join the bears, although we'll want to be a bit more nimble since this downtrend is quite mature.

 

[Trader Skillset]

NZDUSD Wave Count

We've now dropped below the 100% expansion target from the wave A low to the wave B high. In addition, we've reached the trend line drawn off the wave (iii) and A lows. This is a natural place for wave (iii) to bottom, and usher in a sideways wave (iv), since wave (ii) was sharp. That likely means prices should remain beneath the .6800 area before turning down into a final, ideally diverging above Sustainable Bear, low.

While the wave (iii) low is imminent, the rally should be corrective and shallow for wave (iv). Shorter term RSI also suggests lower prices will be seen, so while we don't want to be bearish from this week's open, we'd imagine doing so by week's end again. We wouldn't be surprised to see wave (iv) end above the temporary down channel, and some may take this as a sign of THE bottom. However, unless we've miscalculated the count, we should allow for another wave down in (v) to complete a much larger pattern. See our site or follow us on Twitter @TraderSKillset for more updates.

 

[fxstrategist]

Complicated, but undestandable. Good post.

 

[Trader Skillset]

Complicated, but undestandable. Good post.

Thanks.

 

[Trader Skillset]

GBPUSD Wave Count

Here's the roundup of the longer term bullish evidence. We have a five wave decline into the wave ((A)) low, an impulsive bounce for (A) that pushed above long term down trendline resistance and above wave (4) resistance. Prices have corrected lower in clear three wave moves for A, C and E of (B). Prices remain above the up trendlines off of the wave ((A)) and A lows, and right at former resistance, now support, from the wave (4) high. RSI has been flat near 50 after registering Sustainable Bull readings (upper blue zone) and bottoming above Sustainable Bear territory (lower grey zone). Add it all up, and we're confident in a bullish outcome.

Here we see more detail of the corrective declines for A, C and E of (B). Now, we can't say for sure that wave D and E are complete, per the top count, but it seems possible. Wave (i) isn't a clear impulse, which means it's either a leading diagonal, or it's part of an ongoing wave D of a triangle for (B). If either of the top two counts are correct, it means that prices will rally above 1.6000 from above the wave C low at 1.5330. But, ideally, even if the triangle is ongoing, prices should remain above the red up trendline. We're currently bullish given that the action down from the wave (i) high is corrective. Prices should remain above the wave (ii) low if the top count is correct. A drop below that would either mean a more complex wave (ii), or the triangle is still ongoing.

 

[Trader Skillset]

EURUSD Wave Count

Prices actually closed Monday's session above the down trendline. But, the breakout was not to be as prices fell back below, and also failed to close above it on Friday's brief break. Daily RSI is back below 50, and although we are still maintaining our bullish outlook up towards 1.1400-1.1600, a break of the 1.0800 level would suggest the corrective bounce from the March low was corrective, and complete.

The most important feature on the intraday chart is the corrective decline from the high set on Monday - it's a clear three wave move. The preceding move that we've labeled (i) is a less clear five, so we do have an alternate listed that would explain the wave (i) move as an (x) (with a running flat as b of (x)), which doesn't undo a bullish outcome after another test of the 1.0800 level. the trouble with the immediately bullish view is that the action up from the wave (ii) low isn't a clear five either. So, we're going to want to wait for a push back above the down trendline prior to getting overly excited about bullish prospects. There's plenty of room to the upside to wait clarification.

 

[Trader Skillset]

AUDUSD Wave Count

Once again, we're not going to alter our top count here, as it's been playing out just fine. We did see some new lows this week, although Friday's occurred on a slight bullish divergence. Until prices are able to close above the down trendline drawn off of the wave B high, there's little reason to believe in a bullish outcome that won't be fully retraced.

Here the bullish divergence into Friday's low is a bit more pronounced, but the count doesn't appear to be complete, yet. It's always painful to be waiting for that "one more new low" that never comes, but bulls will have to show a push above the down trendline and the .7600 area before we're willing to change our count here.

 

[Trader Skillset]

NZDUSD Wave Count

We're anticipating one more new low here too, but there's reason to be a bit wary of its extent. First, prices dropped slightly below the 100% expansion target from the wave B correction, so prices are at a natural place for a bounce. The commodity rout continues, though, and the action up from the wave (iii) appears to be corrective and complete. One more diverging new low would be ideal for our count.

The key feature on this chart is the sharp decline once prices pushed above .6695. Notice that the wave (iv) high is near former fourth wave resistance (wave .iv of v of (iii)), and the decline from (iv) appears to be a five wave move. So, we can hold bearish ideas as long as prices remain beneath .6740, looking for a new low. We won't overstay our welcome as bears though, and will be quick to take profits into a new low.

 

[Trader Skillset]

USDCAD Wave Count

Prices fell to start the week as expected, but an interesting thing happened once prices traced out five waves down from the high - a dramatic reversal. Daily RSI remains in Sustainable Bull territory, which keeps the idea alive that any decline will be a correction.

Here you can see the very clear five wave decline for wave .c of iv. You can see the power of the trendline, which is really just a representation of the "herd's trend." In this case, the herd is clearly in favor of higher prices. We're looking higher still into a top, although we won't be surprised to see the red trendline broken during the flat wave 4 correction we're anticipating. Keep in mind that the wave 2 correction retraced 61.8% of the wave 1 rally, so a triangle or other flattish correction should appear per the guideline of alternation.

 

[Trader Skillset]

USDJPY Wave Count

So, both counts point higher from the wave 4 or (A) low into a wave (iii) of C of (B) high. The trouble is that wave (ii)/B was awfully shallow, and there's only three waves up from that low right now.

If the larger count is still pointed higher in wave 5, it seems that wave (iii) would just take over right now to push prices higher, but that's not a given. We're going to wait for further development before we're able to get clarity here. A deeper correction in (ii) or (c) of B would be a very nice opportunity since both point towards the 125.50 area. Alternatively, buying a breakout above 124.58 against this week's low would provide a nice scalping opportunity.