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The inevitable seems to be happening to the U.S. dollar. After record-breaking liquidity injections by the Fed in response to the COVID-19 crisis, the greenback is weakening across the board. The U.S. dollar has recently been declining against its major rivals, including the Yen, the pound and the euro.
EURUSD, the most traded Forex pair worldwide, managed to add over 420 pips in the past month. And while the Fed’s interventions can easily explain the move from a macro perspective, traders needed more precise tools to take advantage of it. With that in mind we sent the chart below to our subscribers on June 22nd.
A month ago, EURUSD was hovering below 1.1180, but still much higher than its March lows. The 4-hour chart above revealed two consecutive five-wave patterns with a w-x-y corrective combination in between. Impulses, as they are known in the Elliott Wave circles, show the direction of the larger trend.
Having the big picture outlook and the Fed’s money-printing in mind, we thought the uptrend should resume as soon as the a-b-c decline from 1.1422 ended. After spending most of 2018, the entire 2019 and Q1 2020 in a decline, EURUSD finally seemed poised for a major rebound. With the pair near 1.1180 a month ago, the time to be bearish was over.
EURUSD started climbing right away. The top of wave ‘v’ held on for a while, but gave up too on July 15th. On July 22nd, the pair reached an intraday high of 1.1602 before closing at 1.1570.
And while the cycle in the U.S. dollar seems poised for its next major down-phase, it won’t move in a straight line. The Fed’s easing and the government’s free money can explain the process in general, but traders need more details. And that is where Elliott Wave analysis steps in.
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