EURUSD fell below 1.04 for the first time in 14 years, after the Federal Reserve raised rates by 25 basis points from 0.50% to 0.75% on Wednesday. The Fed’s move was highly anticipated and so was the dollar’s strength after it. But it deserves to be mentioned that EURUSD has been rising from as low as 1.0525 to 1.0670 in the days prior to the rate hike announcement. If a rate increase was literally guaranteed, why did traders buy EURUSD on Monday and Tuesday? We do not know, but because of the Elliott Wave Principle, we were not surprised and neither were our clients, who received the following chart before the market opened on Monday, December 12th.(some marks have been removed for this article)
As visible, EURUSD was not supposed to break below 1.0500 from the first try. Instead, we though a small three-wave correction should lift the pair above 1.06, before the downtrend resumes. Even if the anticipated recovery was going to be a bit bigger, the bearish outlook would remain valid, as long as the invalidation level at 1.0870 was safe. Five days later, the chart below shows how things went during the week of the second rate hike since 2006.
1.0870 was never in danger. EURUSD’s highest point this week was 1.0670 – a massive 200 pips lower so all we had to do was stick to the plan and sell the euro against the U.S. dollar, which would have led us to 1.0366 as of yesterday. Not bad at all.
