We hope everyone is having a great weekend.
SPX500 (Cash) There is no change in our outlook. Our Primary count is still a Diagonal C wave from 1201.1 low. We believe dip to 1264.6 on Thursday completed w.iv of this ED pattern. Currently price could be in wave b of v of ED. 1300 is the Invalidation Level for this wave count. This provides an excellent level for Stop Loss on any short positions. A rally above 1300.7 would shift focus to the larger Ending Diagonal scenario which suggests price is still with wave iii of ED. This would allow for further upside toward 1310-1320 in a choppy manner over the next few days before market finally rolls over. 1264 is the key pivot level on the downside. A below 1264 would signal that we have already seen a significant peak and market is now headed lower either in w.1 of III or w.C of a FLAT correction. (b of Y or FLAT X) In short, momentum is lacking and a cycle is coming to an end soon, upside is limited and if Ending Diagonal interpretation is correct, we could see a sharp reversal just like we saw from the Oct lows (1075). So if you are feeling bullish, stops on longs must be placed right below 1264.6. There is another possibility which suggests that markets is in the process of completing wave ( w ) of Y, and market should pullback soon in 3 waves in wave ( x ) of Y to about 1202 – 1218 and then up again in wave ( y ) of Y to about 1320 – 1330 to complete the entire correction from 4th Oct (1075) low.
USDX: Rally has continued despite bearish momentum divergence but we doubt it will go on for too long. We still believe that the Index is either completing a Leading Diagonal for w.A/I or a double zig-zag move from the major 2011 low. Shorter cycles, however, are calling for further strength and levels around 81.69 – 82.00 could be seen. In case of aggressive strength 82.89 could also be traded. Index would be really exhausted by then and a correction would then be expected. It remains to be seen what structure the correction would take and whether it would be in time or price? We recommend waiting for confirmation of a top in USDX (5 waves down on H1) and then shorting the pullback with a defined risk. Once the current up-cycle has ended, USDX should pullback for a minium of 3 weeks and probably longer and levels around 78.00 could be seen during the pullback.
USDCHF: Daily chart is showing nice 5 swings from 2011 major low (0.7065). We believe w.4 ended @ 0.8566 and w.5 is underway. Price has already made a new high above w.3 peak (0.9314) but the rally from 0.8566 appears incomplete as there is no RSI divergence on 240 min chart. We believe w.iv of 5 ended @ 0.9256 (21st Dec). Wave 2 of the current cycle was irregular and wave 3 is underway (probably nearing completion). Once, w3 is complete expect a pullback in w.4 and another leg up to about 0.97 and may be as high as 0.9740. This should be enough to complete 5 waves from 0.9256 and most likely from 0.7065. A larger 3 wave pullback would then be expected to about 50 fib -61.8 fib of the rally from 0.9256 and may be even 0.7065. Again, we recommend waiting for confirmation of a top( 5 waves down on M15/H1) instead of picking the top. This pair has been mirroring USDX swings very closely and we are closely watching this pair for signs of a top.
EURUSD: EUR was one of the weakest currencies across the board and continues to decline against USDX. Our shorter cycles are calling for a pullback and 1.2807 – 1.2885 could be reached. Following this recovery, we are expecting another leg down in this pair. 1.2596 & 1.2506 are levels of interest on the downside. This should be enough to start a larger recovery in the pair and EURUSD could recover for upto 3 weeks and probably till early March. 1.3076, 1.3240 and 1.3400 would be levels of interest on the upside. Following this peak, the pair should turn lower and begin a sustained downtrend lasting several months toward our longer term objective of 1.1400 and may be even lower.
AUDUSD: Our revised wave count suggests that price is in a FLAT correction from 1.0378 high. Three wave move to 0.9856 completed wave a of the FLAT, three wave (double zig-zag) move to 1.0385 was wave b and we are now expecting a 5 wave c leg lower to retest 0.9856 low. Following this low, AUDUSD should turn up and rally for several weeks and could reach as high as 1.05. A daily close above 1.0385 would mean that uptrend has resumed ahead of schedule and the pair is headed directly higher into first or 2nd week of March when a significant peak is due ( but given the toppish price action / wave structure in SPX500, we believe this scenario is less likely). Following this peak, AUDUSD should turn lower and decline for several weeks and our first downside objective would be a retest of 0.9386 low with scope to reach as low as 0.9177.
USDJPY: No Change in outlook. Our daily chart shows price to be in the final stages of a very large Ending Diagonal structure. We believe wave 4 of ED completed with intervention spike to 79.52. We are showing a triangle in wave B of 5 position which we believe completed @ 78.02. We believe decline from 78.02 – 76.60 was in 5 waves and price is now correcting that decline. Price got rejected @ 77.31 (50 fib) and this could have completed the entire correction or just 1st leg of the correction. If the decline stalls around 61.8 fib (76.89), there is scope for another leg higher to 61.8 fib (77.48) – 76.4 fib (77.69) to complete the correction. Either way, we expect the downtrend to resume and 2011 low (75.55) to give way. Pair could drop to an initial low of 75.17 before continuing lower. Only a rally through 78.02 will negate the bearish bias.
To conclude, it appears that SXP500 upmove is losing momentum. Wave C is looking more like an Ending Diagonal (invalidation above 1300.7). Ending Diagonals are terminal structures and result in sharp reversals when completed. A rally above 1300.7 will switch focus to the larger ED which suggests price is still in w.iii of ED. 1264 is the key pivot level on the downside. A break below 1264 would mean that move has already completed and downtrend is resuming. First support lies @ 1249 and second support level comes in @ 1229. We are tracking several wave counts all with different downside targets but what matters at this stage is that price action looks toppish and a downswing is expected next. USDCHF appears to in an impulse wave up from 0.9256 and could reach as high as 0.9740 before a cycle is completed. It is worth keeping an eye on this pair to get an idea about USDX as the pair has been closely mirroring the swings in USDX. USDX could see a pullback at the start of the week and then continue higher to about 82.00 and even 82.89 in case of aggressive strength before a larger pullback.
Trade Safe & Good Luck
Elliottwave Forecast Editorial Team