Sunday, June 5, 2011

Long Term Interest Rates - Higher rates to come?

Discussed in this post was a possible ending of a long term trend in Australian interest rates. Started in 1982, a long term decline of interest rates appears to have completed as a very obvious elliott wave pattern. On the horizon are higher interest rates but after some medium term declines or sideways action that may last for many months.

This long term decline comprises of an Elliott Wave flat pattern: a 3-3-5 structure, thus a completed flat will have an A, B and a C wave with A & B having 3 waves and C with the standard 5 waves.

There is a difference between elliott waves seen in the stock market and what can be seen in interest rates and currency markets. Stock markets move up in waves of 5 and are an indication of progress where interest rates operate in waves of 3 over long periods of time. If they didn't, then conceivably interest rates would eventually reach 100% and higher.  Operating in 3 waves makes it very difficult to estimate long term trends as these 3 wave corrective patterns are the most difficult to predict due to their complexity and the range of many different types.

Therefore, it's usually easier to look for smaller 5 wave patterns within the larger corrective patterns, unless some very obvious pattern emerges - this seems to have now occurred.

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