What a week for EURUSD bulls! The pair is moving sharply up after weeks or even months of suffering. After opening at 1.1437 on Monday, the European currency climbed to almost 1.1623 against the U.S. dollar, before retreating to its current whereabouts near 1.1560.
It is interesting to note that Donald Trump’s trade war, which used to serve as an explanation for EURUSD’s six-month selloff from 1.2556, is now being mentioned as the reason for the pair’s recovery. In fact, EURUSD jumped the most right after Mr. Trump said the U.S. is going to impose a 25% tariff on every car from the European Union. Apparently, the FED is worried about the effects of tariffs on the American economy, which, in turn, puts the dollar under pressure. The trade war, it turns out, can explain both a rally and a decline in the value of the dollar when needed.
Another negative for the greenback that circulates in the media is Michael Cohen’s guilty plead in a New York court, which implicates the President in illegal payments during his presidential campaign.
The problem is that both Trump’s fresh tariff threats and Cohen’s guilty plead happened yesterday, while the EURUSD chart below was sent to our subscribers eight days ago, on August 15th.
Since nobody can predict news and events, most Elliott Wave analysts do not even try. We certainly don’t and the latest news was just as startling to us as it was to anybody else.
Recognizing a pattern on a chart, on the other hand, is possible and that is what Elliott Wave analysis is all about. The pattern in question was a contracting triangle correction in the position of wave 4, labeled a-b-c-d-e. According to the theory, triangles precede the last wave of the larger sequence. In EURUSD’s case, the last wave was wave 5, which we thought was almost over on August 15th, meaning a bullish reversal was just around the corner.
EURUSD fell to 1.1300, where the bulls decided they have suffered enough. A week later, they were back above 1.1600. This situation proves that traders do not have to be ahead of politics, in order to stay ahead of the markets. The latter is possible without the former. Especially in the totally unpredictable twists and turns of the Trump era, relying on the news to guide our trading decisions is a game we don’t want to play. The Elliott Wave principle is a far superior alternative.
What will EURUSD bring next week? That is the subject of discussion in our next premium analysis due out on Sunday!