Since May 19, the model we have been following implied an eventual retest of 79 cents. Now that prices have cleared the previous 12 month consolidation rising to the highest price in 2 years, what does the Elliott Wave model suggest?
The model we are following shows a major wave relationship near .7911 and a minor wave relationship near .7956. These two wave relationships appearing this close together may suggest a reaction lower is looming. Due to the structure of the pattern since September 2015, we can consider the whole corrective sequence higher complete, though it is a little early to confirm.
The Elliott Wave model we are following is a complex correction higher that began September 2015 as an expanded flat, followed by an ‘X’ wave triangle, followed by a zigzag.
The biggest clue about this complex correction is the ‘X’ wave triangle. We know from Elliott Wave theory that triangle patterns precede the ending move of the pattern at the next larger degree. The triangle pattern formed from April 2016 and ended in May 2017 at .7378. That suggests this move higher is a terminal wave to end the sequence that began September 2015.
(View webinar recording on triangle patterns, how to read them and how to trade them.)
Closer inspection of the May 2017 to current up trend, we are anticipating some type of A-B-C pattern. We can count a zigzag complete where the distance of wave C equals the distance at wave A at .7956.
(Learn more about zigzag patterns in this webinar recording on zigzags.)
If this pattern holds, then we can anticipate a large sell off to begin from nearby levels and retest 69 cents. Before we get excited about a bearish reversal, let us wait for price and sentiment to confirm a turn.
IG Client Sentiment is running at -2.73. If we see this number start to elevate and increase, then it would be symptomatic of a bearish turn in price that would line up with the Elliott Wave model. Learn how to trade with sentiment with our IG client sentiment guide.
Three DailyFX analysts selected the Australian Dollar as their top trade for 2017. Read pages 13, 18, 20 of DailyFX’s Top Trades of 2017.
—Written by Jeremy Wagner, CEWA-M
Discuss this market with Jeremy in Monday’s US Opening Bell webinar.
Follow on twitter @JWagnerFXTrader .
Join Jeremy’s distribution list.