outlook & forecasts for 2018 · since then, declines have unfolded into a typical elliott wave...

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OUTLOOK & FORECASTS FOR 2018CURRENCIES & INTEREST RATES - PART III FEbRUARy 2018(data through 27th January 2018)

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TAbLE OF CONTENTS {click on TOC text!}

In This Edition » .............................. page 1Highlights » ....................................... page 2Editor’s Note » ................................... page 3

CURRENCIES » ........................... page 4

INTEREST RATES » ............ page 22

APPENDIXfig. #122-124 US$-Dollar Index » pages 27-28fig. #125 USD - Aggregate Position » page 28fig. #126 52 Week FX Range » ............. page 29fig. #127-131 US$-Index » ............ pages 29-31fig. #132-137 EUR vs. USD » ....... pages 32-34fig. #138-140 STLG vs. USD - » .... page 35-36fig. #141 USD/YEN vs. Nikkei » ....... page 36fig. #142-143 USD vs. YEN » ................ page 37fig. #144 USD vs. CHF - Weekly » ..... page 38fig. #145-147 AUD vs. USD » ....... pages 38-39fig. #148 NZD vs. USD - Weekly » ..... page 40fig. #149 USD vs. CAD - Weekly » ..... page 40fig. #150 EUR vs. STLG - Monthly » . page 41fig. #151 EUR vs. YEN - Monthly » ... page 41fig. #152 STLG vs. YEN - Weekly » ... page 42fig. #153-155 ADXY Index » ......... pages 42-43fig. #156-157 Currency Studies » ....... page 44fig. #158 USD vs. IDR – Monthly » ... page 45fig. #159-160 USD vs. MXN » ...... pages 45-46fig. #161-162 USD vs. ZAR » ........ pages 46-47fig. #163-164 USD vs. BRL » ............... page 47fig. #165 USD vs. RUB – Daily » ........ page 48fig. #166 USD vs. Renminbi » ............. page 49fig. #167 Bitcoin - Weekly » ................. page 49fig. #168-169 US 30yr Yield » ............. page 50fig. #170-173 US 10yr Yield » ....... pages 51-53fig. #174-175 US 10yr - US Tips » ....... page 53fig. #176-177 DE 10yr Yield » ...... pages 54-55

fig. #178 Japan 10yr Yield » ................ page 55

It was exactly 1-year ago, in January 2017 when the annual forecast wrote: This year’s most anticipated event is the changing trend for the US$ dollar against its G4+ counterparts. Over the last 7.8-year cycle period, the US$ dollar index has traded higher from the pre-financial-crisis lows to current levels but contained within a typical Elliott Wave, THREE price-swing pattern…This 7.8-year cycle upswing is about to complete, into Q1’17 then stage a reversal-signature that resumes the long-term downtrend. The dollar’s decline over the next several years will be massive, fueling a resurgence in commodity values and other assets classes in this 2nd phase of our ‘INFLATION-POP’ scenario.

It’s easy to forget just how prescient this forecast was because the US$ dollar has since declined so rapidly during the last year that it’s already embedded into our current reality – in other words, we’ve got used to it! But at the time, it was oh-so contrarian with consensus opinion heavily tilted towards a strengthening US$ dollar because the Federal Reserve was expected to continue tightening monetary policy and a resurgent U.S. economy triggered by President Trump’s ‘America First’ programme. But all that was blown away during 2017. The US$ dollar index benchmark has since declined by -14.8% per cent – but why? Part of the reason has been a resurgent Euro which is the world’s second most traded currency unit but that isn’t it – the real reason behind the US$ dollar’s decline is the change in its alternating 7.8-year cycle.

Back in 2008, the dollar index formed a low at 70.70 – fast-forward another 7.8-years to late-2016, early 2017, the cycle alternates to form its next major peak. This of course, means the next 7.8-year cycle is now in a downwards direction from the US$ dollar but what path is it likely to follow during this time period? No trend or even counter-trend trades in a straight-line.

IN THIS EDITIoN

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»IN THIS EDITIoN (CoNT.)

This annual 2018 report examines that path for the US$ dollar, but also how this relates to the Euro/US$, Stlg/US$, US$/Yen and many more currency pairs and crosses. And to place the 2018 forecasts into context, we’re examining long-term trends to see how they’ve interacted in the past, how they influence the future.

We also take a look at the net aggregated US$ dollar positioning against 8 currencies which offers a glimpse into sentiment extremes and what the immediate future holds for many of these trends. We expect to see a significant directional change of intermediate degree status into Q1 2018 which will have an effect on all currency pairs and crosses. Specific attention is also drawn to Commodity Currencies like the Aussie and Canadian dollar, together with Yen crosses against other majors. Our attention then turns to Emerging Market currencies, the Asian ADXY basket, but also some directional hints for the Korean Won, Singapore Dollar, Indian rupee, Taiwan Dollar, Thai Baht, Malaysian Ringgit, Indonesian Rupiah and the Philippine Peso. Our analysis will also include the Mexican Peso, US$/Rand, Brazilian Real, the Russian Rouble and China’s Renminbi – oh, I almost forget to mention Bitcoin!

INTEREST RATES are a big subject for 2018 – whilst the Federal Reserve have begun to withdraw from monetary stimulus over the last year with rate hikes a normal feature and expectation for 2018, it’s quite a different story with two other major central banks. The European Central Bank is continuing to exert its stimulus programme with continued bond purchases with no signs of withdrawal even though it acknowledges the Eurozone economy is in a strong recovery. The Bank of Japan has just reiterated its commitment in maintaining its own economic stimulus agenda whilst its key inflation measures remain benign. This dislocation is an intriguing one but there is some uniformity in the way long-dated interest rates are behaving.

One aspect worthy of mention is that despite U.S. stock markets reaching new record highs and a strong economic reading across many industrial sectors, US10yr yields are relatively low by comparison. This annual 2018 report will offer some insights as to why this is happening whilst planning a definitive route for long-dated yields for this coming year. We’ll make comparisons with the benchmark European DE10yr yield and adding some cycle analysis before finalising with an outlook for the TIPS 10yr Inflation rate and Japanese 10yr yield forecast.

HIGHLIGHTS

CURRENCIES: » It’s been 14-months since the US$ dollar index formed a major high at 103.82 in January 2017. Since then, declines have unfolded into a typical Elliott Wave impulse pattern, a five wave sequence which is approaching its end within a month or so, towards 87.72+/-, max. 85.76+/-. Despite consensus opinion that the dollar will continue to trend lower during the coming year, the completion of a five wave impulse decline will in contrast, open the way for a multi-month corrective bounce to unfold. Analysis projects a fib. 50% retracement towards 95.42+/- over the next several months. These of course, represent the 1st and 2nd waves within the broader 7.8-year downtrend cycle documented last year. In the meantime, the reemergence of US$ dollar strength from March onwards would translate across almost all other currency pairs and crosses for several months too. Against the Euro/US$, an equivalent five wave uptrend that began from the Jan.’17 low is forecast ending towards 1.2727+/-, max. 1.3000+/-, then giving way to a multi-month corrective decline towards 1.1472+/-. Much has been written about Sterling’s influence from Brexit but in reality, the currency’s movement is aligned to the US$ dollar – a high is expected by Q1 ’18 into the 1.4495-1.5170+/- area. US$/Yen is right now, at a critical juncture – a break below September’s low of 107.32 would trigger a massive move into Yen, selling US$ dollars but equally, if held above, a resurgence to 117.70+/-.Commodity currencies like the AUD/US$ and US$/CAD have been strengthening since forming major lows at the grand ‘RE-SYNCHRONISATION’ trough of Jan/Feb.’16 but are expected to take a pause and weaken this year once the US$ dollar turns higher.

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»HIGHLIGHTS (CoNT.)

CURRENCIES (CoNT.): » Emerging Market currencies, particularly those traded within the Asian ADXY index are trending higher from the Dec.’16 lows but again, will undergo a weakening period lasting several months before the medium-term uptrend resumes.

INTEREST RATES: » Despite recent remarks from major industry luminaries that interest rates are now trending higher, this fact has been an empirically measured fact derived from Elliott Wave analysis for the last 18-months! No surprises there. But when acknowledgement does enter the markets mainstream consciousness, it provides an early warning of ending the existing trend. The 60+/- year cycle (peak-to-peak, trough-to-trough) in long-term U.S. interest rates has been consistent over the last 250+ years and we take another look at this development from year-1761 to present day. This cycle forms major trough-to-peak/peak-to-trough intervals of 30-35+/- years with the last peak forming in year-1981. The July ’16 troughs in U.S. and European yields represent the beginning of the next 30-35-year uptrend cycle. The recent break for the US10yr treasury yield above the 2017 high of 2.631% combined with only a 20bps ‘safe-haven’ decline during the late-January/early-February stock market sell-off indicates further upside potential into the end of Q1 ’18, beginning of Q2 targeting 3.360+/-. Preferential counts label this upside test as ending a five wave impulse pattern that began from the July ’16 lows. Once completed, a multi-month corrective decline would then begin, pulling yields sharply lower. The US10yr TIPS Breakeven Inflation Rate Spread indicates an interim peak forming at the same time as treasury yields test 3.360+/- but then beginning a counter-trend decline lasting several months. This suggests worries over the reemergence of inflationary pressures will abate for a while. In Europe, the European Central Banks relaxed approach to inflation means it remains with its existing QE programme. But DE10yr yields are trending higher too, but as a more restrained five wave impulse pattern from the July ’16 lows, targeting 0.930+/-. In Japan, the JPY10yr yield has also been trending higher since forming historical lows back in July ’16 – a fifth wave completion remains higher, towards 0.237+/-.

ANNoUNCEMENT

This month’s Elliott Wave Navigator publishes Part III of our annual update of price-forecasts for 2018 and beyond. This report is also available in video format – if you haven’t already found this in your incoming e-mail, please contact us for details

– Parts I & II published during the last several weeks took a look at annual price-forecasts for Global Stock Indices (fig’s #1-54) and Commodities (fig’s 55-120) – in this edition, Part III (fig’s #122-178) updates many of the trends for Currencies & Interest Rates. There are 57 individual charts in this report and all are uploaded into the EW-Forecast database together with many more time-series and alternate counts – if you need help, please contact us.

EDIToR’S NoTE

The Elliott Wave Navigator is WaveTrack International’s monthly f lagship report that updates the location of current price-trends of the major markets across several time-periods. Price forecasts are dynamic in nature because they utilise non-linear methodologies that originate from the disciplines of the ‘Natural Sciences’ – these incorporate the timeless rhythms of growth/decay, action/reaction, progress/regress whilst adding methodologies of measurement in the form of geometry, timing with cycle theory and repetition of pattern with the Elliott Wave Principle. These combined offer a true and accountable insight into future price-trend development – for more information, please contact us or alternatively, visit www.wavetrack.com – sincerely, Peter Goodburn.

LIvE-UPDATE-FoRUM (LUF)

The Live-Update-Forum (LUF) is our conference-call access point to ensure we communicate the most important aspects of market price development directly to you! There are some amazing changes on the horizon, many of which feature in this month’s EW-Navigator report, but there are others that are simply uploaded into the EW-Forecast database that could be critical to view – we invite you to call us now to take the next LUF conference-call meeting and we’ll ensure you see what is relevant to your very own portfolio.

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CURRENCy OvERvIEW ‘THEMES & oBSERvATIoNS’

Can’t see the wood for the trees! It’s easy to think the US$ dollar is in an uptrend when you think back to the pre-financial-crisis period of 2007-08. The dollar index hit a low in March ’08 at 70.70 and has been trading higher for 8-years. That is, until January last year when it tested 103.82 – it’s been lower ever since!

Commentators, analysts, media anchors alike have all said the long-term trend is still up, up, up, but what are they looking at to gauge that? Standing back and taking a longer-term look at the US$ dollar’s history, we discovery a very different reality – see fig #122. This chart is the US$ dollar index from around year-1660 onwards. The most important information is the Elliott Wave overlay. From a base low at the end of the America Civil War in 1864-65, a five wave impulse pattern is visible, trending higher into completion at 149.46 (closing basis) in early-1985 (164.72 intra-day). To think that a typical Elliott Wave impulse pattern can develop through events like the Industrial Revolution, WWI, the Great Depression and the events of WWII is quite phenomenal because at no time did these exogenous elements disrupt the normal flow if the five wave impulse construct. It is also worth noting that the 5th wave, labelled cycle wave 5 ended at the exact quarterly closing price of 149.46 where it unfolded by a fib. 61.8% ratio of waves 1-3. This 121-year uptrend terminated at the peak in year-1985 which simultaneously began a multi-decennial three wave counter-trend decline.

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»PROLOGUE

Three deterministic disciplines are used to compile this year’s price forecasts for 2016 – first and foremost, trends and counter-trends, their interdependent path of price development is governed by the Elliott Wave Principle (EWP)

– second, price amplitude basis numerology, specifically, the geometric ratio and proportion qualities of the Fibonacci Summation series – and third, time as in cycle theory, derived from the use of repeating periodicities. This report not only compiles the product of these attributes, but also attempts to explain the basis of its results in a logical, understandable manner. Information is only useful if it can be ‘actioned’ upon and that can only be attempted if there is a belief that price-forecasting is possible in the first place.

This report again includes many cycles covering different time spans. To get the most out of this analysis, remember two things – the red cycle line measures time, not necessarily price amplitude and so be careful not to interpret this in terms of price expectancy – that dimension is attained using the Elliott Wave Principle (EWP) and our proprietary application for using Fibonacci Price Ratios (FPR). Some cycles overlay the price in order to visually accentuate the timing of peaks and troughs, whereas others appear in non-overlay format and appear at the bottom of the chart and simply portray longer-term effects in progress.

Two time-periods are described in this report and these must be singularly interpreted with corresponding time-periods of Elliott Wave analysis. Inter-mediate term composite cycles that combine various time-interval components offer guidance to how we can expect 2016 to develop whilst medium-term cycles project further into the future, towards the end of the current decade and into the next.

fig. #122 US-Dollar Index - Quarterly

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So yes, inflation doesn’t necessarily translate into dollar strength, but weakness as the U.S. attempts to pay down debt through a weakening currency.

This is expected to pull commodity prices and all other assets significantly higher over the next several years. It will be a revitalizing period for Emerging Markets as commodity prices rise along with currency gains against the US$ dollar.

ELLIOTT WAvE & CyCLES

Over the last few years, we’ve documented the dominant 15.6-year cycle for the US$ DoLLAR INDEX and its centrally-translated mid-point 7.8-year interval. It was the end of a 7.8-year mid-point cycle that formed last year’s peak in January ’17 at 103.82 – see fig #123. This affirms the dollar’s decline corroborating the Elliott Wave forecast for continued declines across into the next decade. So whereas the EW analysis is able to project the direction/path and even the depth/amplitude of this next decline over the next several years, cycles complete the third dimension, time, and when the next major trough will occur, 7.8-years from Jan.’17, into the years 2023-24+/-.

As we saw earlier, the long-term advance from the year-1864-65 period unfolded into a typical five wave structure ending in year-1985 at 164.72

– see fig #124. A typical three wave price-swing correction has since begun, but its decline is still far from completion.

So far, this remains incomplete – it will take another several years before completion, well into the next decade. So when you read about the dollar being in an uptrend, remember this chart proves otherwise.

REvISITING THE ‘INFLATION-POP’

One of the main reasons that consensus expectations have favoured US$ dollar strength is because of the growing U.S. economy and the Federal Reserve beginning a monetary tightening cycle in its efforts to reduce its balance sheet and to ‘normalise’ interest rates. But something else is forcing the dollar lower.

There’s a lager 45-year cycle at work – forty-five years ago, President Nixon abandoned the Breton Woods currency-peg system that had been in operation since 1944. It was August 15th 1971 – Nixon announced the unilateral withdrawal of the dollar’s convertibility to gold which inadvertently created the dollar into a fiat currency with an immediate inflationary impact on global markets. That same 45-year cycle began to exert its force at the beginning of year-2016 which began the 2nd phase of our ‘Inflation-pop’ scenario.

The US$ dollar’s weakness will be one of the key drivers contributing to our forecast for higher commodity/asset prices – during the early 1970’s, WHEN INFLATION bEGAN TO BUILD HIGHER, the US$ dollar index DECLINED FRoM A HIGH oF 120.55 To A LoW AT 82.07 BY 1978.

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fig. #123 US$-Dollar Index - Monthly - Composite Cycle

fig. #124 US$-Dollar Index - Monthly

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Taking the form of a zig zag labelled in cycle degree, A-B-C, wave A began this counter-trend phase with a low forming into the Feb.’91 low at 80.34. Extending this decline by a standardised fib. 61.8% ratio projects a terminal low for wave C towards 49.35+/-. As the 7.8-year cycle indicates, a projected low is not due until years-2023-24+/-.

In this chart, primary wave ③ is projected lower over the next few years towards 56.08+/-. This is derived where wave ③ unfolds by a fib. 114.58% multiple of wave ① – then cutting this from its origin, from the Jan.’17 high of 103.82 by a fib. 61.8% ratio creates a ‘golden-section’ level at 82.18+/-. This could be a low for intermediate wave (1) although shorter-term analysis currently forecasts the completion a little higher. Nevertheless, it’s worth considering.

AggregAted US$ dollAr PoSitioning

The AGGREGATED US$ DoLLAR PoSITIoN-ING TAbLE provides useful information related to price-extremes and excessive optimism/pes-simism when related to the price activity of the US$ dollar index – see fig #125. Taking a look at last year’s (2017) decline in the dollar’s net-long positioning, this mimics the corresponding de-cline in the US$ dollar index – which means as the dollar declined, investors/traders were con-tinuing to unwind long positons, in other words, the lower it traded the more they sold. It was August that saw the net-logs change to net-shorts, a reflection of bearish sentiment at the time.

But historically, this isn’t enough to validate a turning point, the net-shorts would be required to decline below -$20-25bn to do that. But it did exactly that into September’s low when the index traded down to 91.01 to complete its 3rd wave within January’s five wave impulse pattern.

The counter-trend 4th wave upswing that followed into November’s high triggered short-covering where the net-shorts were entirely neutralised to zero. As the calendar moves into the beginning of 2018, the net-shorts begin to build again as the dollar index resumes as its 5th wave decline. What is noticeable is the net-shorts are not building at a fast rate as compared to last September – declines are just a trickle. As the 5th wave decline approached completion into Q1 ’18, this sets up a bULLISH DIvERGENCE. This means the aggregated US$ dollar positioning histogram is trending upwards from September’s low whilst the US$ dollar index trends lower. This confirms a major upswing is to begin, a month or so from now.

By contrast, the EURo/US$ NET-LoNG PoSITIoNING IS AT ITS 52-WEEk HIGH – see fig #126. Before a synchronised and corresponding top for the Euro/US$ is in place, we’d expect this to drop a little from current levels. This chart also shows the net-positioning for the other seven currency pairs. The US$/Yen stands out as the shortest currency against the US$ dollar, with notable turn-arounds for Stlg/GBP and CAD/Canadian Dollar.

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fig. #125 Aggregated USD Position

fig. #126 52 Week Currency Range

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PRooFING DIRECTIoN

Some analysts are still holding on to the fact that the US$ DoLLAR remains in an uptrend (see earlier comments). But the probability of this is considered very tiny, at least from an Elliott Wave perspective

– see fig #127. The explanation for this is because the March ’08 upswing from 70.70 is clearly identified as ending a single/double zig zag pattern into the Jan.’17 high of 103.82. The structure conforms to a single/double zig zag but importantly, we’ve used our proprietary fib-price-ratio techniques to ‘proof’ it too – for example, extending the first zig zag upswing to 89.62 by a fib. 61.8% ratio projects a terminal high for the second zig zag to 103.77+/-. The actual high formed just 5 pips away, at 103.82.

CoMPoSITE CYCLES

This weekly composite cycle has a good track record of highlighting imminent changes of the US$ DoLLAR INDEX’s direction over the last couple of years, actually longer – see fig #128. It depicts the next cycle-trough into late-January ’18, now!

As you can see from previous troughs, the timing of a turn must be given some tolerance of deviation, it can be early or late – in this next case, it looks like it will be early as the US$ dollar index is expected to finalise its 5th wave decline into late-February, latest early-March. But it does offer some insights to timing and the direction of the trend if applied alongside the EW-forecast.

In this update for the US$ dollar index, the 5th wave, labelled minor wave v. five began its decline from the November ’17 high of 95.15 – see fig #129. Unfolding by a fib. 61.8% correlative ratio of waves i-iii. one-three projects a terminal low towards 87.72+/-. If this is going to end the fifth wave and the entire impulse from the Jan.’17 high as intermediate wave (1), then it must do it soon!

What’s interesting is the counter-trend upswing for wave (2) – this means the market will again be wrong-footed as consensus is still linearly-extrapolating the dollar’s decline for this year. A healthy counter-trend upswing can begin wave (2) and trade back towards resistance at ‘fourth wave preceding degree’, i.e. the fib. 50% retracement zone at 95.42+/-.

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fig. #128 US$-Dollar Index - Weekly - Composite Cycle

fig. #127 US$-Dollar Index - Weekly

fig. #129 US$-Dollar Index - Daily

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The daily composite cycle depicts the next cycle-trough sometime later, in May ’18 – see fig #130. Once again, some timing deviation/tolerance is necessary but the overall direction of trends is extremely accurate.

If there’s to be a prolongation for ending the current impulse decline from January’s high into May, then the pattern would be prolonged too, adding 1 degree of subdivision so that two successive lower-lows form before ending into lower downside targets towards 85.76+/-. See fig #131. This is derived by extending the initial 1-2-1-2-1 sequence by a fib. 161.8% ratio (103.82-96.51 x 161.8% = 85.76).

So far, we don’t know exactly which level will finalise the dollar’s decline, but we do know that it won’t collapse at this juncture as opinion seems to indicate and that a multi-month period of dollar strength will last through into mid-year, maybe longer.

EURo/US$

The corresponding 15.6-year cycle of the US$ dollar index is slightly longer for the EURo/ US$ at exactly 16-years or 192 months – see fig #132. The cycle-peaks are more often, left-translated, ending earlier than the actual price-peak but the cycle-troughs are very consistent in timing the exact lows.

This was true for the more recent low formed exactly one year ago, in January ’17. The half-interval of the 16-year cycle is of course, 8-years, which means adding eight years onto 2017 to depict the next major cycle-peak into year-2025.

The advance from the Jan.’17 low of 103.41 begins cycle wave C, the final five wave impulse sequence within the third of a triple zig zag pattern that originated back in the 1920’s deflationary period – see fig #133. Extending cycle wave A by a fib. 38.2% ratio projects a minimum upside objective for wave C towards 2.0235+/-. Cutting this by a fib. 61.8% ratio creates two ‘golden-section’ levels at 1.3365+/- and 1.5700+/-.

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fig. #130 US$-Dollar Index - Daily - Composite Cycle


fig. #132 EUR vs. USD - Monthly - Composite Cycle

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These are the harmonised points which marks potential upside targets for ending primary wave ① (1.3365+/-) and wave ④ (1.5700+/-). This is because wave 1 x 161.8% = 2.0235+/- and waves ①-④ x 61.8% = 2.0235+/-. Other ratios could apply to this impulse pattern, but this always provides a good starting point to measure its progress.

As explained earlier in the dollar index section, despite a strongly rising EURo/US$ for the last year, there are still those who believe in an existing downtrend with targets far below parity. But this is highly improbable, maybe impossible now for two reasons – see fig #134.

First, the entire decline from the July ’08 high of 1.6040 has successfully completed a double zig zag pattern into the Jan.’17 low at 1.0341 – this is verified using fib-price-ratio analysis – extending the first zig zag to 1.2329 by a fib. 61.8% ratio projects a low to 1.0479+/- (see inset).

Second, the upswing from 1.0341 has since unfolded into a five wave impulse pattern – this cannot be part of an expanding flat correction from the March ’15 low of 1.0462 because its amplitude traded above the critical fib. 38.2% extension level of 1.2228+/-. Instead, a new primary impulse pattern has begun with wave ① upside targets towards 1.2700-1.3000+/- based upon internal measurements from 1.0341.

The weekly composite cycle for the Euro/US$ is similar to the US$ dollar index – see fig #135. Its next cycle-peak occurred at the end of January ’18 – it could extend a month into late-February but after that, the cycle declines into the next trough due in September.

There are two upside targets and wave counts for primary wave ①. First, where a finalising 5th wave advance labelled intermediate wave (5) began from last November’s low of 1.1554 targeting 1.2727+/-. See fig #136. This is derived where wave (5) unfolds by a fib. 61.8% correlative ratio of waves (1)-(3). What follows is a multi-month correction as primary wave ② targeting the fib. 50% retracement area at 1.1472+/- whilst attempting support at ‘fourth wave preceding degree’.

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fig. #133 EUR vs. USD - Monthly

fig. #134 EUR vs. USD - Weekly

fig. #135 EUR vs. USD - Weekly - Composite Cycle

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Second, upside targets to 1.3000+/- which prolongs the Euro’s advance into April/May.

For this to work, a reshuffle of the labelling is necessary, where the initial upswing unfolds into an additional sequence, i.e. 1-2-1-2-1, then extending this to 1.1286 by a fib. 161.8% ratio – see fig #137.

Let’s see how far this travels in the weeks ahead. Either way, a counter-trend downswing is expected to dominate the landscape for several months into mid-year or later.

STERLING/US$

The long-term wave count of STLG/US$ depicts a multi-decennial corrective decline ending into the Oct.’16 low at 1.1491. This is labelled as ending cycle wave X within a developing double zig zag upswing that began from the Feb.’85 all-time-low of 1.0463 – see fig #138.

This is responding to the impulse downswing that originated from 11.4942 at the height of the American Civil war of year 1864-5. Extending the first zig zag to 2.0100 (includes B wave high at 2.1160) by a fib. 38.2% ratio projects a terminal high for this secondary zig zag towards 2.7692+/- although that is at least 7-8 years into the future, maybe longer.

Cutting the entire zig zag by a fib. 61.8% ratio projects upside targets for cycle wave A towards 2.0310+/-.

Subdividing cycle wave A into a developing primary degree five wave impulse pattern, we can see primary wave ① approaching upside targets towards 1.5170+/-. See fig #139.

Its 5th wave, intermediate wave (5) is still some way off, derived by extending waves (1)-(3) by a fib. 61.8% ratio. But there is a lower target that could end the same pattern at 1.4495+/-.

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fig. #137 EUR vs USD - Daily

fig. #136 EUR vs USD - Daily

fig. #138 STLG vs. USD - Monthly

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This is derived where wave (5) unfolds by a fib. 61.8% correlative ratio of waves (1)-(3) – see fig #140. This upside target should be checked to see if it coincides with equivalent upside targets for the Euro/US$ towards 1.2727+/-.

US$/YEN

The positive correlation between the Nikkei stock index and the US$/YEN has remained consistent since the Bank of Japan began intervening in the currency markets by intentionally weakening the Yen back in late 2011. Our medium-term outlook for the NIKKEI remains very bullish so you’d think that should translate into a much stronger US$/Yen.

It also seems logical if we’re expecting a US$ dollar revival from late-February onwards. But danger lurks just around the corner.

The positive correlation hasn’t always been that way, dependent on monetary policy. There are several pockets were negative correlation has played its role too, the longest in recent history was between March ’86 and November ’88 when the Nikkei trended higher by +104% per cent whilst the US$/Yen declined by -32.5% per cent – see fig #141.

Should monetary policy by the Bank of Japan shift towards a withdrawal from QE, then the Yen would begin a strengthening period against all currencies, also against the US$ dollar.

This would trigger the next major decline as intermediate wave (C) of a developing zig zag pattern as primary wave ②’s downswing – see fig #142.

Wave ②’s downside target is towards the 91.87+/- area which is derived by extending wave (A) by a fib. 61.8% ratio. This converges with the fib. 61.8% retracement level of primary wave ①’s advance.

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fig. #139 STLG vs. USD - Daily


fig. #141 USD/YEN vs. Nikkei - Weekly

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Looking further ahead, the continuation of a primary degree five wave expanding-impulse pattern continues afterwards with primary wave ③ to 162.86+/- and wave ⑤ to 186.61+/-. This ends cycle wave C within the expanding flat that began from the April ’95 low of 79.92.

With the US$ dollar engaged in a new 7.8-year downtrending cycle, it does remain possible for the US$/YEN to exceed the 91.87+/- level, but if it does, it won’t be as primary wave ② but as the first zig zag within an ongoing decline to historical lows – see fig #143. In this alternate count, the entire decline from the Aug.’98 high of 147.62 is labelled as a declining diagonal-impulse, specifically, an ending/expanding-diagonal in the 5th wave location of primary wave ③’s long-term downtrend.

An ultimate low is measured towards 63.13+/- which is derived from our proprietary, empirical studies where the 1st-3rd wave decline is equal to the decline in the 2nd-5th, i.e. they measure equally, by a fib. 100% correlative ratio.

US$/CHF (SwiSS FrAnc)

Back in the 1920’s, the exchange rate of the US$/ CHF was trading at an historical high of 6.7080. Since then, the decline has unfolded into a characteristic, multi-decennial three price-swing zig zag pattern, labelled A-B-C and assigned cycle degree status.

Wave A ended the dollar’s decline into the Oct.’78 low at 1.4704 and later, wave B’s rally at 2.9245 in Jan.’85. Wave C has since declined steadily over the subsequent period which is consistent with the US$ dollar index’s decline from its peak in year-1985. (See EW-database for long-term forecast).

Cycle wave C’s decline is taking the form of a five wave diagonal pattern, labelled in primary degree, ①‑②‑③‑④‑⑤. Primary wave ③ ended its decline into the Aug.’11 low at 0.7064 – see fig #144. Primary wave ④ has since begun a counter-trend upswing that is unfolding into the most simplest form of a correction, a zig zag, labelled (A)-(B)-(C), subdividing 5-3-5.

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fig. #142 USD vs. YEN - Monthly

fig. #143 USD vs. YEN - Monthly - Count #2

fig. #144 USD vs. CHF - Weekly

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Wave (A) ended the initial advance to 0.9973 and wave (C) to the Dec.’16 peak at 1.0345. Since then, primary wave ⑤ has continued lower but beginning this impulse downtrend by unfolding into a 1-2-1 sequence with short-term downside targets towards 0.9140-0.9089+/-.

This translates into a sizable upswing for the US$ dollar soon, labelled minute wave 2 within the downtrend. It has limits though, below the origin of minute wave 1’s decline from 1.0038 – any break above would otherwise prolong primary wave ④ towards 1.1200+/-.

AUD/US$ (AUStrAliAn dollAr)

The AUD/US$ exchange rate was trading at 2.0527 in early year-1934 with its subsequent decline against the US$ dollar taking 67 years before ending a three wave zig zag pattern into the 2001 low at 0.4776 (see EW-database for long-term forecast).

It’s not surprise that the Aussie dollar has a positive correlation to commodity prices, particularly industrial metals like iron ore and copper. This will have an impact on the outlook for the next several years.

Meanwhile, its recovery phase that began from the April ’01 low of 0.4776 is taking the form of a multi-decennial double zig zag pattern, a seven price-swing sequence.

Labelled in cycle degree, A-B-C-X-A-B-C, the basic structure of this pattern and its accompanying fib-price-ratio measurements are found within the first zig zag sequence. This sequence ended into the Aug.’11 high at 1.1083 – see fig #145. The three price-swings are augmented where cycle wave A is extended by a fib. 61.8% ratio that projects wave C to the exact high at 1.1010 (1.1083). The following decline as wave X is correlated to commodity price declines that began from the year-2011 period.

Commodity-related currencies and Emerging Markets underwent a grand ‘RE-SyNCHRONISATION’ process in Jan/Feb.’16 (see Elliott Wave Navigator reports, 2016) and a major low formed correspondingly for the AUD/US$ at 0.6827. A secondary zig zag upswing has since begun. Extending the first zig zag to 1.1083 by a fib. 38.2% ratio projects the secondary sequence towards 1.5265+/-.

Shorter-term, there are two ongoing scenarios to consider. The first labels the advance from 0.6827 as a five wave expanding-impulse pattern for cycle wave A but beginning as a series of 1-2’s, the preliminary stages of fractalisation prior to ‘price-expansion’ as a 3rd-of-3rd wave etc. Whilst this is perfectly possible, when placed alongside our expectancy that the US$ dollar will soon begin a multi-month strengthening period, then upside acceleration seems unlikely unless this is a unilateral move associated with some exogenous event, like a sudden rise in interest rates or an extension of commodity price rises (unlikely at this juncture – see PART II Commodities report) – see fig #146.

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fig. #146 AUD vs. USD - Weekly

fig. #145 AUD vs. USD - Monthly

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The other possibility, which at the moment is assigned ‘alternate’ status but soon to be promoted is where the same advance from 0.6827 has unfolded as primary wave ① as a leading/contracting-diagonal pattern – see fig #147. The ‘leading’ type diagonal usually consists of impulse waves, i.e. (1)-(3)-(5) each unfolding into five wave impulse patterns – this is visible in wave (1) but not in wave (3) – wave (5) has yet to develop fully to upside targets at 0.8258+/-, max. 0.8354+/-. Wave (3)’s advance looks more like a three wave zig zag – it certainly measures like one. If correct, then this diagonal would go into the archives as a ‘hybrid’ diagonal pattern, where its impulse waves are a mix between ‘fives’ and ‘threes’ – we have documented this on more than several occasions in the past (see WaveSearch archives). But otherwise, everything else fits this year’s US$ dollar’s scenario.

NZD/US$ (new ZeAlAnd dollAr)

The Kiwi dollar is unfolding against the US$ dollar in the same format, same multi-annual pattern development as so many other commodity currencies, a three wave zig zag advance from the financial-crisis lows – see fig #148. For the NZD/US$, the zig zag began from 0.4898 and labelled in primary degree, Ⓐ‑Ⓑ‑Ⓒ. Wave Ⓐ ended into the August ’11 high of 0.8845, exactly the same time as gold formed its high. Wave Ⓑ then completed a correction into the Sep.’15 low at 0.6236, two months before gold formed its low.

Primary wave Ⓒ has since begun to develop higher as a five wave impulse pattern, labelled in intermediate degree, (1)-(2)-(3)-(4)-(5) where wave (1) ended into the July ’17 high at 0.7559 and (2) in November at 0.6780.

Wave (3) can easily surge higher now, but in reality, this might be difficult if the US$ dollar is expected to begin a multi-month strengthening phase sometime from March onwards. To reconcile this, one possibility is that wave (2) is unfolding into a more complex corrective pattern, an expanding flat. If so, then the current advance would test upside targets towards 0.7880+/- but then decline to 0.6608+/- during the same time the US$ dollar begins its multi-month strengthening phase. Looking much further ahead, ultimate upside targets for primary wave Ⓒ remain towards 1.1085+/-.

US$/CAD (cAnAdiAn dollAr)

The long-term history of the US$/CAD begins from the 1920’s. At that point, the exchange rate was trading at 1.190 with some erratic movements until an important low formed into the late 1950’s at 0.959.

It then began a multi-decennial uptrend, its structure taking the form of an Elliott Wave impulse, a five wave pattern that ended into the all-time-high at 1.6189 in Jan.’02 (see EW-database for long-term forecast).

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fig. #148 NZD vs USD - Weekly

fig. #147 AUD vs. USD - Daily

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Its subsequent decline unfolded into a five wave pattern, down into the Nov.’07 low at 0.9059 – see fig #149. This indicates that a multi-decennial downtrend (for the US$ dollar) is engaged and supported by the fact that the next counter-trend phase that lifted the exchange rate higher from 0.9059 has since unfolded into a satisfactory three price-swing zig zag pattern. This is labelled in primary degree, Ⓐ‑Ⓑ‑Ⓒ with wave Ⓐ ending its interim high at 1.3063 in March ’09, wave Ⓑ declining to 0.9405 in July ’11, and finally, wave Ⓒ to the Jan.’16 peak of 1.4691.

A major 8-year cycle decline as cycle wave C has since begun starting with primary wave ① subdividing into a smaller five wave pattern labelled in intermediate degree. Intermediate wave (1) completed its decline to 1.2460 in May ‘16. Wave (2) has since pushed higher into a corrective double zig zag pattern ending at 1.3794 with wave (3) now trending lower. Wave (3) is must subdivide into a five wave impulse pattern, labelled in minor degree, i-ii-iii-iv-v where wave i. one ended into the Sep.’17 low at 1.2060.

Minor wave ii. two is forecast unfolding into a horizontal flat pattern – this requires a downside attempt to 1.2060+/- during Q1’18, then as the US$ dollar begins its multi-month recovery, the US$/CAD begins an upside re-test of the Dec.’17 resistance to complete the horizontal flat at 1.2920+/-.

EURo CRoSSES –Euro/Stlg – Euro/YEn

EURo/STLG’s long-term uptrend that began from the early 1920’s (formerly Reichsmark) ended into an orthodox high at 0.9019 in Nov.’95

– see fig #150.

The counter-balancing corrective decline is unfolding into a multi-decennial expanding flat pattern composed of three main price-swings, down-up-down and labeled A-B-C in cycle degree.

Wave A ended the first sequence with a decline to 0.5685 in May ’00 – wave B as the second sequence has since run higher whilst unfolding into a triple zig zag but so far, this continues with ultimate upside targets towards 1.0758+/- derived by extending cycle wave A by a fib. 38.2% ratio.

Once completed, cycle wave C declines get underway, targeting downside levels towards 0.4765+/- by extending wave A by a fib. 38.2% ratio.

Shorter-term, the third and final zig zag upswing within cycle wave B began from the July ’15 low of 0.6932. Labelled in primary degree, Ⓐ‑Ⓑ‑Ⓒ, wave Ⓐ ended its five wave advance into the Oct.’16 high at 0.9403. Primary wave Ⓑ is currently engaged in a counter-trend decline with downside targets towards minimum 0.8064+/-. We expect a downside test to this level later this year, in 2018.

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fig. #150 EUR vs. STLG - Monthly

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fig. #149 USD vs. CAD - Weekly

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The EURo/YEN outlook for the next several years remains bullish for the Euro – see fig #151. The long-term uptrend dating back to the 1920’s ended into the dual peaks of year 1971 and 1979 (expanding f lat – orthodox high and higher high), the latter at 285.56. The following decline as cycle wave C of a multi-decennial expanding flat pattern ended the first stage of the correction into the Oct.’00 low at 88.97. This low was well documented at the time, and correctly forecast basis Elliott Wave analysis.

Ordinarily, this has the potential to begin a new multi-decennial uptrend resulting in a new five wave pattern that ultimately breaks above the 285.56 high. But we’ve been more modest, at least at this stage of development in plotting a recovery zig zag that becomes cycle wave X within an ongoing double-three decline.

The initial advance of the zig zag developed primary wave Ⓐ to a high in July ’08 at 169.97. When the financial-crisis hit, the Euro declined against the Yen during this period of safe-haven buying as primary wave Ⓑ.

It’s fortunate that such a clearly visible zig zag unfolded as it validates the corrective low into the July ’12 extremity at 94.11. The next advance begins primary wave Ⓒ – this must ultimately trend higher during the next several years into a five wave pattern, labelled (1)-(2)-(3)-(4)-(5). Extending primary wave Ⓐ of this zig zag by a fib. 61.8% ratio projects to an ultimate target towards 253.58+/-.

With intermediate wave (1) ending into the Dec.’14 high at 149.78, wave (2) has more recently, in June ’16, reached downside targets forecast earlier last year at 109.55. Intermediate wave (3) is now in its early stages of upside development with the advance so far, labelled as minor wave i. one targeting 151.94+/-.

The STLG/YEN outlook for 2018 depicts a period of Sterling weakness, Yen strength but as a correction within a multi-year developing uptrend – see fig #152.

Before this began, the long-term downtrend that began from the 865.20 level ended an impulse pattern into the Sep.’11 low of 116.84.

A cycle degree zig zag rally begins from this low, where cycle wave A ended into the June ’15 high at 195.89 and the following decline as wave B to 124.14 in Oct.’16. Wave C must ultimately unfold into a primary degree five wave impulse pattern, ①‑②‑③‑④‑⑤ and so far, waves ① and ② have completed, wave ③ beginning with intermediate wave (1) ending at 156.62 just recently, in Jan.’18. Wave (2) declines are now in progress – this could take several months to unwind with downside targets towards 143.28+/-.

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fig. #151 EUR vs. YEN - Monthly

fig. #152 STLG vs. YEN - Weekly

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ASIAN CURRENCIES – ADXY InDEX

January/February 2016’s ‘Re-SynchRoniSation’ process of developed and emerging stock markets with global US$ dollar denominated commodity prices occurred at the same time as many EM/Commodity currencies formed major lows against the US$ dollar. Some Asian currencies have also synchronised to this major directional change, but many have not. A typical comparative reflecting convergence/divergence is the positive-correlation between Copper prices and the ADXY ASiAn-dollAr index – see fig #153.

The close alignment of these two is clearly visible from the pre-financial-crisis period onwards except for the divergence gap that has opened up during the last year.

See how Copper prices ended 5-year corrective declines in January ’16, trending higher since whilst the ADXY has traded to a lower-low. This produced a classical bullish divergence signal which ultimately translated itself into a new uptrend for the ADXY currencies against the US$ dollar which got underway from the Jan.’17 low.

The 1998-2008 advance (91.30-116.40) ended a cycle degree, three wave zig zag labelled A-B-C which has been subsequently balanced by a counter-trend running flat pattern labeled cycle wave X ending last year (2017) at 102.50 – see fig #154. The secondary zig zag upswing has since begun with cycle wave A targeting 124.30+/-.

This must unfold into a five wave impulse pattern labelled in primary degree, ①‑②‑③‑④‑⑤. Extending cycle wave A by a fib. 61.8% ratio projects a terminal high for wave C towards 142.60+/- which means the US$ dollar will remain in a severe downtrend for the foreseeable future.

Shorter-term however, primary wave ①’s advance from 102.50 is approaching an important upside target towards 112.20+/- into Q1’18, latest Q2 ‘18. We expect to see the US$ dollar then begin a strengthening period, pulling the ADXY lower for several months – estimated downside targets are towards the fib. 50% retracement area at 107.30+/-. See fig #155.

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fig. #154 ADXY - Asia Dollar Index - Monthly

fig. #153 ADXY - Asia Dollar Index vs. Copper - Weekly - Positive Correlation

fig. #155 ADXY - Asia Dollar Index - Weekly

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The 10-component currencies and weighting of the ADXY are as follows:

CNY – 38.16% »KRW – 12.98% »SGD – 11.07% »HKD – 9.22% »INR – 8.75% »TWD – 6.1% »THB – 4.92% »MYR – 4.3% »IDR – 2.85% »PHP – 1.65% »

Of these ten, the Hong Kong Dollar and China’s Renminbi/Yuan have been individually analysed, the remaining eight have been given preliminary Elliott Wave scrutiny revealing a mixed picture, some in accordance with the ADXY analysis, others not. The following is a breakdown of current forecasts – see fig’s #156 & #157:

US$/kRW » – Korean Won remains in downtrend against the US$ dollarUS$/SGD – » Singapore Dollar remains in uptrend against the US$ dollarUS$/INR – » Indian Rupee remains in downtrend against the US$ dollarUS$/TWD – » Taiwan Dollar remains in uptrend against the US$ dollarUS$/THB – » Thai Baht remains in uptrend against the US$ dollarUS$/MYR – » Malaysian Ringgit remains in downtrend against the US$ dollar

US$/IDR – » Indonesia Rupiah remains in uptrend against the US$ dollarUS$/PHP – » Philippine Peso remains in uptrend against the US$ dollar

And so, the main weak currencies against the US$ dollar are the Korean Won, Indian Rupee and the Malaysian Ringgit. An individual example of a strengthening Asian currency vs. the US$ dollar is shown in the US$/IDR, the Indonesian Rupiah – see fig #158.

The entire decennial advance from the June ’99 low of 6535.00 completed a perfectly formed 5-3-5 zig zag pattern ending into the Sep.’15 high at 14828.00.

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fig. #156 USD/KRW | USD/SGD | USD/INR | USD/TWD - Currency Study

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fig. #157 USD/THB | USD/MYR | USD/IDR | USD/PHP - Currency Study

fig. #158 USD vs. IDR – Monthly

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Note how primary waves Ⓐ and Ⓒ measure exactly equally, by a fib. 100% ratio, a characteristic of the zig zag pattern. The outlook for the US$ dollar is therefore very bearish looking several years ahead.

US$/MXN (MexicAn PeSo)

The weakness in the Mexican Peso began from the year-2011 low of 11.467 when commodity prices began counter-trend declines. The US$/ MXN advance (reflecting dollar strength) has since unfolded into a five wave expanding-impulse pattern, labelled in intermediate degree, (1)-(2)-(3)-(4)-(5) ending at 22.053 in Jan.’17, the exact time the US$ dollar index formed its 7.8-year cycle peak – see fig #159.

The following decline has since unfolded into a five wave impulse pattern, ending into the July ’17 low at 17.4346. Whilst the US$ dollar index has been trading to lower-lows since, the US$/MXN has remained above those July lows, which means it has been relatively weak compared to other major currency pairs – see fig #160. Shorter-term, the upswing from 17.4346 is identified as beginning a multi-month zig zag corrective upswing, labelled a-b-c in minute degree. Wave a ended at 19.9198 whilst unfolding into a five wave impulse pattern, wave b is still aiming lower with downside targets towards 17.7783+/-. Sometime later, maybe towards year-end, wave c retains upside targets towards 20.8641-20.9601+/-.

RAND - REAL – RoUBLE - renMinbi

US$/ZAR – The S. Africa Rand was introduced as a decimalised currency in February 1961, three months before the Republic of South Africa was established. This break from the British and South African Pound meant devaluation where the Rand was then worth at its introduction 2:1, two Rands per Pound and one Rand to US$1.40. There were several devaluations later, before and after apartheid in 1994. From an Elliott Wave perspective, this series of declines versus the US$ dollar has resulted in a visible five wave impulse pattern that completed into the Dec.’01 high at 13.850.

What happened afterwards confirmed the beginning of a multi-decennial counter-trend decline, taking the form of an expanding flat pattern, labelled 🄰‑🄱‑🄲 – see fig #161.

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fig. #159 USD vs. MXN – Weekly

fig. #160 USD vs. MXN – Daily

fig. #161 USD vs. ZAR – Monthly

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Wave 🄰 ended an initial decline into the Dec.’04 low at 5.605 with wave 🄱 subsequently running higher in a twelve year advance to recent highs at 17.890. Wave 🄱 must unfold into a three price-swing zig zag (or double/triple) and it duly complied with this requirement. Idealised upside targets for completion of this advance towards 17.146 were exceeded slightly, but a rapid price-rejection into this peak, followed by a decline below the original level suggests its upside conclusion. This implies the US$/ZAR is in the very early stages of a multi-year decline as wave 🄲. Downside objectives are shown towards 4.527+/-.

Shorter-term, the decline from the 17.890 peak has ended primary wave ① into the March ’17 low at 12.3117 followed by wave ②’s completion at 14.5749 in Nov.’17 – see fig #162. The next decline has unfolded into a five wave expanding-impulse pattern which remains incomplete but approaching downside targets towards 11.4286+/- as intermediate wave (1). This downside test is expected within the next month, maybe two but then giving way to a multi-month corrective upswing as wave (2) with targets towards min. 12.9076+/-.

US$/BRL (Brazilian Real) – Over the last several months, we’ve maintained two wave counts which depict different pattern development for primary wave ②’s counter-trend upswing that began from the Feb.’17 low of 3.0418.

The first describes a double zig zag in progress, labelled in intermediate degree, (A)-(B)-(C)-(X)-(A)-(B)-(C) where the first zig zag ended at 3.4066 in May ’17, wave (X) into the Sep.’17 low at 3.0804 with the secondary zig zag still underway towards 3.5572-3.5952+/-. See fig #163. The Jan.’18 low at 3.1227 began intermediate wave (C) within the secondary zig zag advance which must continue higher without breaking below 3.1227.

The second ‘alternate’ count otherwise describes primary wave ②’s advance/correction unfolding into an expanding flat pattern, i.e. (A)-(B)-(C) – see fig #164. Wave (A) ended a three wave zig zag to 3.4066 with wave (B) continuing to decline with downside targets towards 2.6910+/-.

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fig. #162 USD vs. ZAR - Daily

fig. #163 USD vs. BRL – Daily

fig. #164 USD vs. BRL – Daily - Count #2

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This will be negated should a more immediate break above 3.4066 occur. Otherwise, wave (C) eventually pulls higher to 3.5572-3.5952+/-.

US$/RUR (Russian Rouble) – The US$/RUR is attempting to complete a five wave impulse decline from the all-time-high of 85.944 towards 50.923-51.109+/-. See fig #165. This is labelled the first wave, intermediate wave (1) within a long-term downtrend. Labelled in minor degree, i-ii-iii-iv-v, extending wave i. one by a fib. 61.8% ratio projects a terminal low for wave v. five to 50.923+/-. Minor wave v. five is also unfolding to a fib. 100% correlative ratio of wave iii. three to 51.109+/- which makes wave i. one the ‘extended’ sequence. These movements correspond to the US$ dollar index’s forecast for a 5th wave low into the 87.72-85.76+/- area, then a sweeping upside recovery lasting several months.

US$/CNY (China Renminbi/Yuan) – There are some shorter-term changes to the US$/CNY forecasts but not the medium or long-term trends. An important low occurred in Jan.’14 at 6.0377 which began from the all-time-high of 8.7410 traded in April ’94. A counter-trend zig zag upswing began from this point which is labelled Ⓐ‑Ⓑ‑Ⓒ in primary degree, where wave Ⓐ completed an initial advance to 6.9603 in Jan.’17 – see fig #166. Since then, a three wave correction has unfolded as wave Ⓑ but is so far, incomplete, requiring a test to slightly lower levels towards 6.1050+/-. This is derived by extending wave (A) by a fib. 61.8% ratio to determine the low for wave (C) of primary Ⓑ. Once completed, we expect a huge advance to begin primary wave Ⓒ with upside objectives towards 7.3515-7.6025+/-.

bITCOIN

Much hype has surrounded bITCOIN over the last few years but especially during the last year since prices of the crypto-currency have gained by a phenomenal +1,972% per cent! Its data-history is relatively short, beginning from July 2010 which shortens the odds of making reliable long-term price forecasts so we have to rely on analysing the data from the previous major correction that ended into the Jan.’15 low at 170.00 – see fig #167.

It began building into a typical step-like 1-2-1-2-1-2 sequence until earlier last year, in January ’17 when it finally underwent ‘price-expansion’ which characterises its 3rd-of-3rd-of-3rd wave acceleration as minute wave 3.

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fig. #165 USD vs. RUB - Daily

fig. #166 USD vs. Renminbi/YUAN – Daily

fig. #167 Bitcoin - Weekly

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This is where last year’s gain of +1,972% per cent comes from. It ultimately completed last December at 19891.00 then giving way to a corrective decline as wave 4 which has only recently completed at 6000.00. Wave 5 is still in its early stages of trending higher with inevitable projections to higher highs, targeting 30085.00+/-. This is derived extending the initial 1-2-1-2 sequence, in minute, minuette and even sub-minuette degree by a fib. 161.8% ratio.

One other possibility is that wave 4 will ultimately unfold into a more complex corrective pattern, i.e. a flat or triangle, and if so, then it will retest close to the December ’17 high before pulling back inside the trading range and staying there for a few months before completion.

Final Remarks

The US$ dollar’s 7.8yr cycle remains in downward progress having begun from the Jan.’17 peak but this downtrend is punctuated by periods of upward rallies. We expect the US$ dollar index to form an important low into Q1’18, but then begin a multi-month upward rally that lasts into will into the latter part of the year.

INTEREST RATES – uS 30Yr YIElD | uS 10Yr YIElD | uS tIpS 10Yr YIElD | DE 10Yr YIElD | Jp 10Yr YIElD

There are two governing ‘drivers’ that determine the course of interest rates – first, the 30/60-year cycle, second, the rising tide of re-inflation. Both indicate U.S. long-dated interest rates ended 30+ year declines in July ’16 with new major 30+ year advances underway. European and Japanese interest rates are not too far behind. The biggest risk is that Central Banks continue to underestimate the impact of re-inflation. The Federal Reserve has already begun to withdraw from its monetary quantitative easing programme and this year, in 2018, consensus opinion forecasts at least three additional 0.5% rate increases. Meanwhile, ECB and Bank of Japan are still squeezing the last remnants out of the monetary accommodation tube and are at risk of falling behind the already apparent changes in inflation data.

But more recently, U.S. inflation data has certainly shown an increasing upward trend which has resulted in long-dated yields pushing above last year’s (2017) peaks. The consensus view has a subtle change recently when the benchmark US10yr yield began to break above resistance at 2.631%. Various bond luminaries including Bill Gross proclaimed a new long-term uptrend had begun – the TIMING of this was interesting from a study of sentiment and ‘contrarianism’ because it came 18-months after the actual long-term uptrend began and more importantly, at a time when the uptrend was engaged in a 5th wave pattern as we’ll see shortly. In other words, it comes late into the existing trend, whips-up excitement to a point which ultimately causes the yield to form an important intermediate-term peak, then a collapse.

With regard to the 60+/- year cycle for the US30YR BoND, historical data begins from the year-1761, so there is 255 years of data used to determine the correct periodicity. The frequency is impressive, with successive peaks and troughs of 30+/- year intervals – see fig #168. It’s not an exact science with some peaks occurring several years before the red-cycle-line, others on time. The last cycle-trough in the 1950’s came on time, the previous in the 1890’s was early. The current period came a little early although barely noticeable! But on each previous occasion, eventually, the genie is let out of the bottle, resulting in a huge rise in interest rate levels. The median level during such times is about 6-7% per cent! The next major cycle-peaks are way out into the years-2039/40 period.

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fig. #168 US 30yr Yield - Monthly - Composite Cycle

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From an Elliott Wave perspective, the previous cycle-trough of the late ’40’s, early ‘50’s ascends into a typical five wave impulse pattern, ending into the hyper-inflation period of 1981 at 15.190% per cent. The following decline produced the next deflationary cycle – see fig #169. This eventually unfolded into a typical zig zag pattern, labelled in cycle degree, A-B-C but untypically, waves A and C each unfolded into expanding-diagonal patterns – completion occurred at 2.088% in July ’16.

The US10YR YIELD unfolded in similar fashion, declining from the peak of 1981 of 15.840% into a three wave zig zag pattern ending into the July ’16 low at 1.316% - see fig #170. The following upside projections for interest rate rises is illustrated more modestly, at least to begin with.

The advance is labelled as an initial zig zag pattern, cycle degree, A-B-C with wave A upside targets towards 3.404% which is the fib. 38.2% retracement level of the year-1981-2016 decline.

So this is just another way of calculating a potential upside target going forward. Cycle wave C is then projected towards the 6.120% area which is derived by extending cycle wave A by a fib, 61.8% ratio. An attempt to this upside area several years from now will largely depend on the depth of the B wave retracement.

At the moment, we’ve forecast this down towards the fib. 50% retracement area of 2.110+/- but if it were deeper, then wave C’s upside potential could be lower too.

Probably the most important event that we can expect for 2018 is a final upside push towards 3.404+/- for the completion of a five wave upswing as cycle wave A, then a hefty retracement decline beginning wave B. For yields to drop that far, at this juncture would inevitable mean a slowdown in the U.S. economy or perhaps induced by a stock market correction of some magnitude which causes a flight to safe-haven bond buying. So far this year, January/February’s stock market sell-off has been blamed by rising interest rates. As you know, these two asset classes are positively correlated (stock prices and yields) and at the moment, they are short-term divergent. But this must ultimately click back to normalisation.

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fig. #169 US 30yr Yield - Quarterly

fig. #170 US 10yr Yield - Monthly

fig. #171 US 10yr Yield - Weekly - Composite Cycle

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CyCLE ANALySIS

The US10yR WEEKLy composite cycle analysis has successfully timed the intermediate-term trend changes over the last several years – see fig #171. From peaks of 2006 & 2014 into the cycle-troughs of 2012 & 2016, the timing of each major turn has been predicted within normal tolerances. Interestingly, the more recent cycle-peak occurred early, in Nov. ’17, turning downwards since. When this normally occurs, whilst the yield is still trending upwards, it signals an imminent end to the existing uptrend.

The entire five wave impulse upswing from historical lows that ended in July ’16 at 1.316 seems to confirm this – see fig #172. With the recent and persistent break above the March ’17 high, the fifth wave of the overall advance as primary wave ⑤ is well established and moving closer towards an ultimate completion at 3.360+/-.

This is derived by extending the initial 1-2-1 sequence to 1.883 by a fib. 161.8% ratio. This converges with the 3.404+/- area shown earlier in the monthly chart.

One alternate count worth taking a look at is where the advance from 1.316% is replaced from a five wave impulse pattern with a three wave zig zag pattern, labelled in cycle degree, A-B-C – see fig #173. Cycle wave C’s advance got underway from the Spe.’17 low of 2.013% targeting an impressive advance towards 4.060+/-, derived by extending wave A by a fib. 61.8% ratio. This seems unlikely though basis the equivalent upside targets for the German De10yr bund yield and a cross-reference of the US10yr-De10yr spread which is forecast to widen over the next few months towards 2.500+/- (currently 2.130).

US10yR INFLATION TIPS

In order to evaluate deflationary pressures and how far they have developed into the cycle, we have taken another look at inflation-linked U.S. denominated bonds/interest rates – TIPS – see fig #174. Like a Treasury note, TIPS provide investors with fixed-rate yield with interest paid semi-annually. But the difference is this - the principal is adjusted to reflect the change in the Consumer Price Index (CPI), and the interest payment is then calculated using the adjusted value of the bond. This payment increases with inflation, but it would decrease in the case of deflation (i.e., falling prices for goods & services). The amount of principal an investor receives is their original investment or the investment plus the upward adjustment.

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fig. #172 US 10yr Yield - Daily

fig. #173 US 10yr Yield - Weekly - Count #2

fig. #174 US 10yr - US Tips 10 yr - Weekly - Yield Spread

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This means that the principal rises with the CPI, while the coupon rate represents the investor’s real return, or return above inflation. Inflation can be calculated by comparing the difference in yields on a 10-year Treasury and a TIP of similar maturity. For example, if the US10yr Treasury has a yield of 2.5% and the US10yr TIPS has a yield of 0.5%, then inflation expectations for the next ten years is roughly 2% per year. This difference is often referred to as the “breakeven” inflation rate.

At the moment, US10yr treasury yields are trading at 2.890% with an equivalent maturity TIPS at 0.815% - this provides a yield differential of 2.075% (see chart).

From an Elliott Wave perspective, the major low of 0.077 that traded into the financial-crisis low of Dec.’08 ended cycle wave A within a multi-decennial expanding flat pattern. Cycle wave B has since begun a decennial zig zag advance, labelled in primary degree, Ⓐ-Ⓑ-Ⓒ. This zig zag fits perfectly into the ‘INFLATION-POP’ schematic first outline in our reports back in years 2011-12.

This TIPS US10yr Breakeven Inflation Rate chart looks identical to the MSCI EMERGING MARkET INDEX! Primary waves Ⓐ and Ⓑ of this developing zig zag have already completed – wave Ⓒ is in the early stages of lifting higher. But there is UNEQUIVOCAL evidence that inflationary pressures are fast accelerating.

Last year’s report forecast a five wave expanding-impulse pattern in upside progress from the Feb.’16 low of 1.264 with targets to complete intermediate wave (1) towards 2.412+/-.

In reality, the advance has instead taken the form of a five wave diagonal-impulse. The difference is where the fourth wave digs so deep to 1.682 that it overlaps the first wave high at 1.705. For the moment, the diagonal retains similar upside targets for the completion of wave (1) as the expanding-impulse had last year, towards 2.177-2.252+/-. What is interesting is that such an attempt would then give way to a multi-month decline that begins wave (2). That is consistent with the outright US10yr yield forecast, which ends a five wave upswing at 3.360+/- but then begins a counter-trend decline lasting several months. Wave (2) for the Tips is projected down towards 1.720+/-. Such a forecast is definitely ‘contrarian’ at this time.

But it this same advance could be interpreted ‘oh-so’ differently. With ‘overlap’, this advance could be labelled as building higher as a series of 1-2-1-2’s with an explosive advance now underway. But to check on this possibility, we’ve taken a comparative look at the equivalent set-up using the iShares Tips vs. iShares 7-10yr T-Bond spread

– see fig #175. It shows the same advance, but as a five wave expanding-impulse pattern with upside targets for completion towards 1.109+/-. That’s not too far away anymore. This seems to secure the forecast of a significant downturn sometime during 2018.

EURoPE – DE10YR YIELD

The European Central Bank (ECB) are at risk of falling rapidly behind the shifting sands of inflationary pressures which are now building higher in the Eurozone economy. Ironically, with US10yr yields and US10yr-TIPS set to form important highs during the next few months, then begin multi-month counter-trend declines, perhaps the ECB’s cautionary position is warranted!

The long-term DE10YR YIELD count confirms the July ’16 low at -0.206% ended the entire downtrend from the year-1981 high of 11.500%

- see fig #176. A new multi-decennial uptrend has begun labelled primary wave ① and lasting into the next decade. Primary wave ① is unfolding into an intermediate degree five wave impulse pattern, (1)-(2)-(3)-(4)-(5) where wave (1) is approaching upside completion towards 0.930+/-. See fig #177. This is timed to complete at the same time as the US10yr yield ends its advance towards 3.360+/-.

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fig. #175 iShares TIPS Bond / iShares T-Bond - Daily

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A 2nd wave correction follows, pulling yields lower in the months ahead too! But looking much further ahead into the future, intermediate wave (5) upside targets are measured towards 2.768+/-, derived by extending wave (1) by a fib. 161.8% ratio.

JAPAN – JPY10YR YIELD

The JPY10YR YIELD has traded down to a negative interest rate level of -0.308% in July ’16, the exact timing when U.S. treasury yields and DE10yr Bund yields formed equivalent long-term lows – see fig #178. This update is very long term, encompassing our entire historical database that begins from the 1930’s onwards.

But it does evoke the idea that long-term declines from historical highs traded in Oct.’61 at 14.820% have indeed ended with a new long-term uptrend already underway.

The inset chart (top-right) is updated from last year and it’s exactly the same insomuch a developing five wave impulse upswing is unfolding from the -0.308 low but still incomplete. The last year has seen the 4th wave continue to range trade, consuming more time in a complex pattern which is typical behavior. But sooner rather than later, we expect to see the 5th wave break higher with upside targets towards 0.237+/-. It would be best if this could occur at the same time that both US10yr and DE10yr yields end their equivalent highs before a multi-month correction sets in.

Final Remarks

The impulse uptrends that have been developing higher from the synchronised all-time-lows of July ’16 across each of the three interest rate regions we cover are moving into a positon at which they will end the first phase of the trend within the next couple of months. After that, the remaining period of 2018 is expected to see downward pressure as multi-month corrections set in. We don’t know what exogenous event will turn rates down but we suspect this will be induced by a stock market correction of some magnitude. The US$ dollar’s counter-trend revival will occur at the same time.

end | Fin | ende

fig. #176 DE 10yr Yield - Monthly

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fig. #177 DE 10yr Yield - Weekly

fig. #178 Japan 10yr Yield - Quarterly

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fig. #122 US$-Dollar Index - Quarterly

fig. #123 US$-Dollar Index - Monthly - Composite Cycle

APPENDIX

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fig. #124 US$-Dollar Index - Monthly

fig. #125 US$-Dollar - Aggregate Position

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fig. #126 52 Week Currencies Range Long/Short Position USD bn

fig. #127 US$-Dollar Index - Weekly

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fig. #128 US$-Dollar Index - Weekly - Composite Cycle


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fig. #130 US$-Dollar Index - Daily - Composite Cycle


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fig. #132 EUR vs. USD - Monthly - Composite Cycle

fig. #133 EUR vs. USD- Monthly

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fig. #134 EUR vs. USD - Weekly

fig. #135 EUR vs. USD - Weekly - Composite Cycle

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fig. #136 EUR vs. USD- Monthly

fig. #137 EUR vs. USD- Daily

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fig. #138 STLG vs. USD - Monthly


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fig. #141 USD/YEN vs. Nikkei - Weekly

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fig. #142 USD vs. YEN - Monthly

fig. #143 USD vs. YEN - Monthly - Count #2

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fig. #144 USD vs. CHF - Weekly

fig. #145 AUD vs. USD - Monthly

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fig. #146 AUD vs. USD - Weekly

fig. #147 AUD vs. USD - Daily

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fig. #148 NZD vs. USD - Weekly

fig. #149 USD vs. CAD - Weekly

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fig. #150 EUR vs. STLG - Monthly

fig. #151 EUR vs. YEN - Monthly

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fig. #152 STLG vs. YEN - Weekly

fig. #153 ADXY - Asia Dollar Index vs. Copper - Weekly - Positive Correlation

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fig. #154 ADXY - Asia Dollar Index - Monthly

fig. #155 ADXY - Asia Dollar Index - Weekly

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fig. #158 USD vs. IDR – Monthly

fig. #159 USD vs. MXN - Weekly

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fig. #160 USD vs. MXN – Daily

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fig. #161 USD vs. ZAR – Monthly

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fig. #162 USD vs. ZAR – Daily

fig. #163 USD vs. BRL – Daily

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fig. #164 USD vs. BRL – Daily - Count #2

fig. #165 USD vs. RUB – Daily

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fig. #166 USD vs. Renminbi/YUAN – Daily

fig. #167 Bitcoin - Weekly

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fig. #168 US 30yr Yield - Monthly - Composite Cycle

fig. #169 US 30yr Yield - Quarterly

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fig. #170 US 10yr Yield - Monthly

fig. #171 US 10yr Yield - Weekly - Composite Cycle

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fig. #172 US 10yr Yield - Daily

fig. #173 US 10yr Yield - Weekly

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fig. #174 US 10yr - US Tips 10 yr - Weekly - Yield Spread

fig. #175 iShares TIPS Bond / iShares T-Bond - Daily

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fig. #176 DE 10yr Yield - Monthly

fig. #177 DE 10yr Yield - Weekly

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fig. #178 Japan 10yr Yield - Quarterly

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outlook & forecasts for 2018 · since then, declines have unfolded into a typical elliott wave...

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