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Correction In Risk Assets: Is There Still More to Go?


Downside targets have yet to be hit in the euro and the Aussie dollar, and the bond markets aren't telling us anything bullish to counteract the negativity in currencies.

The daily chart of the Aussie dollar / Japanese yen cross (AUDJPY) is shown below. From just over 80, the AUDJPY still has room to go lower before the first possible wave iii target (the 138.2% Fibonacci price projection line at 78.236) is tested. If that level of support does not hold up, then the next support level would be the 161.8% projection line at 77.409.

Something to keep in mind is that this wave iii move lower (see blue Fibonacci labels and lines) is merely a part of a larger wave C move to the downside. There's much more room to go lower before the wave C target at 70.944 is approached. Can other risk assets hold their macro bullish patterns if this type of move in the AUDUSD occurs (open-ended question)?

Click to enlarge

At 1.02590, the Aussie dollar / US dollar cross (AUDUSD) also has a bit more room to the downside before its short-term wave ((iii))) target range (1.00435 to 0.99570) is tested. Like the AUDJPY, AUDUSD is also in a bigger picture "c" wave to the downside. So, even when the downside target range is hit, don't look for a major upside move. Rather, we should expect to see some sort of "flat" correction as wave ((iv)) plays out.

Click to enlarge

So, the Aussie crosses are telling us to expect a bit more downside in risk assets in the very short-term. Once that move is done, the Aussie crosses are further telling us that we should see a modest move sideways to higher (fourth waves) and then another move lower (fifth waves).
No positions in stocks mentioned.

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