The ECB yesterday announced that it will continue with its aggressive asset-buying program, although the pace of the purchases will be reduced starting April, 2017. In response to the news, EURUSD initially rallied to 1.0870, but then crashed all the way down to 1.0589 as of today.
Let’s assume that you have predicted the ECB’s decision beforehand and you knew what was Draghi going to say. You should have been able to predict EURUSD’s reaction then, right? But which reaction? The initial rally of the following selloff?
You may have a crystal ball, which tells you the news in advance, but we do not have one. Instead, we rely on the Elliott Wave Principle, so we do not even need to pay attention to the news. The following chart was included in the analysis we sent to premium clients before the open on Monday, December 5th.(some marks have been removed for this article)
As visible, at the start of the week our Elliott Wave analysis suggested EURUSD was likely to recover and turn the recently broken B-D support line into resistance, before reversing to the south again. Keep in mind that this forecast was sent to clients four days before the ECB announcement and all that was needed for it was the chart you see above. The next one shows how EURUSD looks like now, one day after the “surprising tapering news”.
Ralph Nelson Elliott once said that “the habit of the market is to anticipate, not to follow“. It is his very discovery – the Wave Principle – which allows analysts to anticipate the news. Following is for the masses. EURUSD’s behavior yesterday is just another example.
Furthermore, some three hours before Thursday’s ECB announcement, we sent our clients an intraday update, which is given below.
The 30-minute chart allowed us to get a more precise outlook on the short-term prospects, because it revealed that “wave II seems to be an expanding flat correction, currently rising in its wave 5 of C. A bearish reversal might occur very soon. Would not be surprised if the ECB’s QE announcement triggers it later today”.
Trying to predict what the ECB and Draghi were going to say was none of our business. We were only interested in EURUSD’s reaction to the news, whatever it is. What crystal ball?