USD extended its losses since yesterday when the US stock market turned sharply lower with the Dow Jones Industrial Average down three days in a row for the first time this year.
Correlation between the markets remains unchanged; USDJPY and other yen crosses are tracking the stock market, while EURUSD and other XXX/USD pairs are moving in opposite direction. As such, EURUSD is at its highs, now testing the 1.3380 area.
From a technical perspective, we see all XXX/USD pairs in fifth waves of 3 and we know that after every five waves the trend will change, even if just temporary. Below I have a basic structure of a five wave rally on which I marked a current position on EURUSD . I see it at the end of wave three so pull-back is expected.
Basic five wave rally
EURUSD 4h
(Members please visit EWC page for 4h counts on other USD pairs)
On the charts above I see it at the end of wave three so pull-back is expected. So what does this tells us?
Well, I think a lot; first, if you are long you could be out of the market here, or if you want to get in and ride the EURUSD trend then it’s probably better to wait for a correction. It also tells you a lot about the other markets.
If correlations will remain as they are and if EURUSD will turn lower from 1.3380/1.3400 resistance then stocks will probably find support that will cause some rally on xxx/JPY pairs as well.
Market correlation 1h
Bottom line: be aware of a trend reversal in the near-term, don’t chase here!