EUR USD rate touched 1.25 on Friday last week, but managed to recover and is currently trading around 1.2640. How high should traders expect this recovery to go?
In order to answer this question, we have to make a dissection of the previous decline’s wave structure, which will show us how far in the Elliott Wave cycle EUR USD rate has progressed. On the chart below you can see three degrees of trend labeled, but if you look deeper, you may be able to find even more.
As you can see, we have waves I, II and III to the downside, where the subwaves of III are countable – (1)-(2)-(3)-(4)-(5). On the other hand, each of these five waves has its impulsive wave structure visible as well – 1-2-3-4-5. All this brings us to the conclusion that EURUSD is currently forming its wave IV correction. Typically fourth waves retrace back to the 23.6% or 38.2% Fibonacci levels. Because of the length and slope of wave III, we expect IV to reach only to the first of the two areas – 23.6% – which means the zone of 1.28. Then we will be preparing for another bearish reversal for wave V, which is supposed to take the EURUSD exchange rate below 1.25.
