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EURUSD is up by 260 pips since the beginning of October. The pair climbed from 1.0879 to 1.1140 in just 14 trading days. The rally appears to be fueled by optimism regarding a possible Brexit deal and the tentative “phase-one” agreement between the US and China. In our opinion, however, there is something more to it.
Inspired by Elliott Wave analysis, we have been expecting a bullish reversal in EURUSD for a while. The truth is it could have happened earlier. The pattern we have been tracking for the past several weeks is called an ending diagonal. Take a look at it on the chart below, sent to our subscribers as a short-term update on Wednesday, October 2nd.
Ending diagonals form in the position of the last wave of the larger sequence. Our full EURUSD analysis included weekly and daily charts in addition to the 4-hour chart above. This helped us put this pattern into the bigger picture and conclude that the larger decline was probably in its final stages.
EURUSD Bulls Unimpressed with Looming Brexit Deadline
The pattern itself consists of five sub-waves, labeled 1-2-3-4-5. Each wave is corrective in structure and waves 1 and 4 overlap. The fact that the shape of the pattern was contracting only strengthened the case for an upcoming bullish reversal.
In other words, at the start of the month, the stage was already set for the breakthrough in the Brexit negotiations reached two weeks later. It was never a sure shot, but while EURUSD was hovering around a two-and-a-half year low, the odds were actually in the bulls’ favor.
Of course, there was no way to predict the outcome of the negotiations. The Brexit saga has been going on for over three years now. Britain’s exit from the EU has been postponed once already. That is why we find Elliott Wave patterns to be a lot more reliable than politics. In EURUSD’s case, it was the ending diagonal we counted on, not Boris Johnson. Fortunately, it didn’t disappoint.
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