What will EURUSD bring next week? That is the subject of discussion in our next premium analysis due out late Sunday!
Overall, 2020 was a good year for EURUSD bulls. Despite the March crash during the coronavirus-related volatility, the pair ended the year up almost 9%. With more stimulus already in the pipeline at the start of 2021, it made sense to expect further devaluation of the dollar against the Euro.
Alas, common sense doesn’t always prevail in the markets. After reaching a high of 1.2350 on the very first trading day of 2021, EURUSD turned south. By the time we sent our January 11th analyses to subscribers, the pair was hovering around 1.2220. Others saw this as an opportunity to buy the dip. The Elliott Wave chart below, however, suggested that would be a costly mistake.
The chart above was the third one included in that January 11th premium EURUSD issue. With any instrument we examine, we always start with the biggest possible time-frame, usually a weekly chart, and then go down to the smaller ones. The idea is to see in what direction the big picture patterns point before trying to identify any short-term trading setups.
Catching Most of EURUSD ‘s 550-Pip Drop in 2021
So, despite us being generally optimistic about EURUSD’s long-term prospects, its 4-hour chart looked rather bearish. The reason for this was that the structure of the recovery from 1.0636 was impulsive. The pattern was labeled 1-2-3-4-5, where the five sub-waves of 1, 3 and 5 were also visible.
In addition, the guideline of alternation was on display. Wave 2 was a sideways-moving w-x-y corrective combination with a triangle in wave ‘y’. Wave 4, on the other hand, was a sharp w-x-y double zigzag terminating shortly above the 38.2% Fibonacci level.
According to the theory, a three-wave correction follows every impulse. With that in mind, joining the bears in January 2021 made a lot more sense to us that staying bullish. Two and a half months later and over 400 pips lower now, here is an updated chart of EURUSD.
Earlier today, the pair fell to 1.1801, down 420 pips since January 11th. Despite persistent inflation concerns following the passing of another $1.9 trillion in stimulus by the U.S. government, the dollar keeps strengthening against the Euro.
After-the-Fact Explanations are of Little Use in Trading
One possible explanation is the much better job the U.S. is doing with its mass vaccination campaign. As of this writing, over 130 million Americans have already received at least one dose of a COVID-19 vaccine. In Europe, the number is barely above 60 million and governments across the Old Continent are now being forced into new lockdowns to curb the virus’ spread.
That makes sense. The problem is that such explanations don’t help traders much. They can’t turn back time in order for us to open a position. The habit of the market is to anticipate, not to follow. And that is exactly what Elliott Wave analysis allows us to do. Instead of looking for ways to make sense of the EURUSD drop after the fact, we were able to predict it using nothing more than a chart.
What will EURUSD bring next week? That is the subject of discussion in our next premium analysis due out late Sunday!
