Both the euro and the Australian dollar fell victims to the US dollar, but it is interesting to see the perspective, when they face each other. The charts of the EURAUD exchange rate could provide some very clear patterns. It is always wiser to start an Elliott Wave analysis from the big picture. So, Let’s start with the weekly chart.
EURAUD rose from 1.16 in August 2012 to 1.5830 in January 2014. The important thing here is the five-wave impulsive structure of this rally. According to the Wave Principle, after a five-wave sequence we should expect a three-wave retracement in the opposite direction. As visible, this is exactly what happened. EURAUD declined to 1.38 in three waves marked with “W”. This was the minimum requirement for a corrective pull-back. However, it looks like the market has decided to stay in corrective mode, because the advance to 1.5330 was also limited to three waves for X. This brings to mind the idea of a W-X-Y double zig-zag, where wave Y is still unfolding. In order to find out what is left of it, we need to move to a smaller time-frame. The hourly chart comes in handy.
The top of wave X gave the start of another decline to 1.40, which, as the chart shows, can easily be counted as a five-wave impulse. We think it is wave “a” of Y. Since the bottom of wave “a”, EURAUD has been moving sideways, which is a characteristic only corrections posses. This means wave “b” could take the form of a triangle or an expanding flat. It is too early to say what it will be right now, but once it is finished, we will expect wave “c” of Y to the downside. It would probably lead EURAUD to the 61.8% Fibonacci level. In terms of price, this means the area around 1.32.
