Saturday, 7 May 2011

AUD/USD from the top down (the jury is still out)

The monthly chart shows that the market has tested the trend line formed from the highs earlier in the century, and begun to fall away. A move upward through that trend line would be a bullish signal. At this timeframe, it's far too early to confirm that the AUD/USD has turned down.

The daily chart shows that the market has broken downward through the trend line formed from the March low. This in itself does not mean that the trend has turned down, it could simply be a sign that the up trend is slowing, or pausing before another surge higher. A clear move below the 40 day moving average (MA) is needed to raise the odds that the trend had turned down. The 40 day MA area has provided support many times in the past. For now, we need to sit on the fence with regard to the trend at daily chart level.

With the trend unclear at daily chart level, let's examine the hourly chart to see if we can confirm that the trend has changed to down. In Elliott wave terms, a turn down would be confirmed by a 1-2-3-4-5 impulse wave. So far I can only count 1-2-3. It is probable that wave 4 has finished at the recent wave c high, and that wave 5 down is now under way, but we need the market to confirm with a move below the low of wave 3.

Another thing this wave count provides is a point at which we could be a fairly certain that the market will head to new highs. A move above the wave 1 low at 1.0847 before we see a wave 5 confirmed, would invalidate the 1-2-3-4 count. This would greatly lower the odds that we are seeing an impulse move lower, and would raise the odds that the 1-2-3 count should be an A-B-C correction, to be followed by new highs.

In conclusion, the trend is currently uncertain, but the odds of a down trend having developed would be greatly increased by a move below this week's low. The market will tell its tale next week.

EUR/USD turns down

Daily chart shows a break below the up trend line formed from the January lows.

The hourly chart shows a clear 5 waves down. From an Elliott Wave viewpoint, that supports the view that the larger trend has turned down. If the 5 waves are complete, the market would next make a corrective move either upwards or broadly sideways. It's possible that wave 5 will extend, which would result in a continued move lower.