All major forex pairs are quite naturally influenced by the US dollar. The problem with the current market conditions is that the US dollar is in a ‘long term’ corrective structure. An important characteristic of ‘long term’ structures is that more often than not, it embeds impulsive-looking waves to both sides on shorter timeframes. Hence, failure to identify the overall ‘long term’ structure may result in flawed trade-execution in shorter timeframes. Because what seems to be a start of a strong trend in shorter timeframes could actually turn out to be just a standalone wave within a large correction.
The question now is whether the correction is complete in the USD index weekly chart. Let’s find out…
Dollar index ‘long term’ correction
It’s quite obvious where the next impulse will go. The real conundrum is within the correction. Because the wave-C is presumably an ending -diagonal, I have concluded the structure as an ABC flat correction. However, the argument for an expanding triangle does still exist. In which case, the current wave up would be wave-D. Nevertheless, the pending interest rate hike (of course, the actual rate hike if there will be one,) could actually make the case for the last hurrah (the wave-5) of the US Dollar effectively including the current bullish price action. Besides the last couple of weekly candles elaborate similar intentions of the market.
USD is likely to be the dominant factor in the EURUSD price as well. Because the above chart shows inverse correlation to the Dollar index, where the next wave is more likely to be bearish. The only difference being the overall corrective structure. In the EURUSD weekly chart the structure still seems to be a triangle, whereas on the dollar index it was most probably an ABC flat which is already complete.
GBPUSD has been bearish for the last few weeks, which was in fact the anticipation even after the flash-crash. Theoretically the bearish wave should continue below the low of the flash-crash-candle. But due to the extreme price points of the flash-crash-candle, wave-5 truncation is also a valid possibility as explained in the previous wave analysis article.
USDJPY looks to be waiting for the USD index to start its bullish wave-5 in order to follow suite. Whether it be the influence of the Dollar, some news regarding the Japanese economy or both; it really does not matter. Because according to the wave analysis of higher timeframes, market has to produce a long term bullish wave. On the other hand if the market continues to be bearish from here, price action will always be corrective, until it starts the bullish wave.
There is no change in the structure from last weeks wave analysis. Given the wave count is correct, the market has to produce the wave-5. Awaiting a break from the bottom boundary of the wave-4 structure to confirm directional bias. But on shorter timeframes the price action has been sideways as price gets squeezed at the end of the triangle-like-pattern on the weekly chart.
Since the current bearish wave exceeded below the intermediate wave-B (green in brackets,) the overall structure is now counted as corrective. Hence the anticipation of the next impulse is now bearish as opposed to the previously anticipated – long-term bullish trend continuation. So the current bearish wave in progress could in fact be wave-1 of a major bearish trend. None the less, there is no ‘conclusive’ evidence to support either case.
USDCHF weekly chart was discussed in detail in the previous wave analysis. This is a closer look at the wave-Y component which is presumably a triangle structure. But it could be counted as a simple ABC ZigZag as well. Neither patterns are labelled in the chart. But I hope you can see both possibilities even without labeling.
Assuming the wave count is correct so far, next impulse wave should be bearish. However, next week may prove to be bullish, be it an overshoot of wave-E of the triangle or the wave-C that exceeds the high of wave-A, the market has to stay bullish for few days before the reversal.
USDCAD too is looking extremely bearish for the next impulse, regardless of the choppy sideways price action for the last few weeks. Although price seem to have topped within the correction, a violation of the bottom boundary of the corrective structure will be the real confirmation.
USDCAD and USDCHF are looking bearish contrary to the bullish anticipation of the Dollar index. Here the reason may be that the dominant factor would not be USD. Instead CAD and CHF as separate entities would be the dominant factor over USD. However USDCHF may have more room for the upside compared to USDCAD, before the major bearish trend.
On the other hand, all remaining major forex pairs – EURUSD, GBPUSD, USDJPY, AUDUSD and NZDUSD are anticipated to play along with the Dollar index. While the forecasts are based on H4, daily and weekly charts, shorter timeframes too may begin to show signs of major trend change starting next week. Mainly because long-term corrective structures in all of the major forex pairs are alraedy complete or nearing completion.