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Messages From the Currency and Bond Markets Continue to Warrant a More Conservative Stance

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There are some minor signs of hope in the resiliency of the high yield bond markets and the potential change (which hasn't happened yet) in the franc / krona indicator.

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CURRENCIES

The EURUSD has yet to send me any bullish messages.

The euro / US dollar currency cross (EURUSD) has tumbled over the last week as I expected and appears to have some more room on the downside both in the short-term as well as the intermediate to long-term (assuming the wave count I have put forth recently – and which is shown on the chart below – is correct).

The EURUSD appears to be in a wave (((iii))) lower with a minimum downside target of 1.26289, which is not very far away now. Either at that level (which represents the 138.2% Fibonacci price extension line for this wave) or perhaps at 1.25419 (the 161.8% Fibonacci extension line), we should see a modest upside correction / consolidation. The reason for the expectation of a "modest" consolidation / correction is that wave (((ii))) was a relatively deep retracement of wave (((i))) – and the rule of alternation in Elliott Wave Theory would have wave (((iv))) be a "flat" correction with not much upside.

This expected action in the EURUSD should mean similar type of less-than-bullish action in the other risk assets like stocks, crude oil, and gold.


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The AUDUSD is echoing the bearishness of the EURUSD chart.

The Aussie dollar / US dollar cross (AUDUSD) almost had a bullish development in the last few sessions when it came close to breaking above the 1.04108 level (which would have invalidated my rather bearish wave count). Since it didn't, however, I have to assume that this count is correct and that the AUDUSD is in the early stages of wave (((iii))) lower with a minimum downside target of 0.99612. There may be undulations along the way, but the trend in the short-term should certainly be lower for the AUDUSD.

This action pretty much echoes – or at least confirms – the bearish implications of the EURUSD chart. This chart seems to have more downside potential in the short-term than does that of the EURUSD, however.

I was going to show the Aussie dollar / Japanese yen chart, but the message there isn't quite as clear on the bearish side. Actually, the fact that there's a divergence there tells me the Japanese may be attempting to intervene in their currency to keep it depressed against its key trading partners to boost their economy. This wouldn't be the first time for that.


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