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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

Basic Five Wave Rally Elliott Wave Analysis

EURUSD 4h

EUR USD 4 hour Elliott Wave Analysis June 13 2013 technical trading

(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

Overlay Market correlation eur usd Elliott Wave Analysis

Bottom line: be aware of a trend reversal in the near-term, don’t chase here!