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EURUSD had been on a tear since mid-March when it bottomed out at 1.0636. Nearly six months later, on the first day of September, the pair exceeded the 1.2000 mark. The bulls seemed firmly in control and the Fed’s money printing suggested further losses ahead for the dollar.
However, years of experience had taught us that in the markets things are not always that obvious. Instead of relying on the trend to simply continue, we examined the situation from the Elliott Wave perspective. Then, we sent the chart below to our subscribers as a mid-week update on September 2nd.
The 4-hour chart of EURUSD revealed the entire rally from 1.0636 in March. Given our big picture outlook – also included in our analyses – we thought we’ve seen the first three waves of a five-wave impulse to the upside. Wave 1, which lifted the pair to 1.1148, was followed by a w-x-y corrective combination in wave 2, where wave y was a triangle.
Amid Extreme Uncertainty, Elliott Wave Analysis Guides EURUSD Traders
The rest of the structure was another impulse, labeled (i)-(ii)-(iii)-(iv)-(v) in wave 3. All that led us to conclude that instead of trusting to bulls to lift EURUSD even higher, it was time for a notable decline in wave 4 to around 1.1600. With the pair slightly below 1.1900 at the time, this meant a ~300-pip drop. The updated chart below shows what happened next.
On September 25th, EURUSD fell to 1.1612, down 280 pips since our September 2nd update. Exactly a month later today, the pair is still down 170 pips and is currently hovering around 1.1720. From the top of wave 3, the euro lost 399 pips against the dollar in wave 4.
With COVID-19, US-China trade tensions, the U.S. election, ongoing Brexit negotiations and military clashes in Nagorno-Karabakh, the world’s geopolitical and macroeconomic situation is more uncertain than ever. Yet, the markets somehow manage to incorporate all the knowns and unknowns into repetitive Elliott Wave patterns. Keeping an eye on them is clearly worth the effort, as EURUSD demonstrated last month.
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