The Euro climbed to its highest level against the U.S. dollar since January 2015 after ECB President Mario Draghi expressed optimism about the Eurozone’s economic prospects in his speech at Jackson Hole on Friday. At least this is the reason mainstream media uses to explain the sudden surge in EURUSD. In our opinion, though, the best a speech can be is a catalyst to trigger a price move, which has already been set up by the market. To prove our point, we would like to show you the following chart, which was sent to clients before the market opened on Monday, August 21st. Draghi and Yellen spoke at Jackson Hole five days later, on 25th.(some marks have been removed for this article)
We could not have known what Draghi was going to say in advance, so we had no choice but to take a look at the charts of EURUSD through the prism of the Elliott Wave Principle and see the market’s most likely reaction to whatever Draghi was going to say. This, in fact, is much more important to traders than the speech itself. In that case, while the pair was close to 1.1760, the 30-minute chart made us think the stage was set for an explosive move to a new high, since the pullback between 1.1909 and 1.1662 was a textbook double zig-zag correction, labeled W-X-Y. According to the theory, once a correction is over, the larger trend resumes. Here, the Wave Principle not only allowed us to turn bullish, but also provided a specific stop-loss level to protect us. A week later, the updated chart of EURUSD below show how the situation developed.
The pair rose to as high as 1.1959 earlier today, while the stop-loss at 1.1662 was never put to a test. As it turns out, EURUSD was ready to rally a full trading week prior to Draghi’s speech. And while most market participants were eagerly waiting for him to speak, in order to form their opinions, Elliott Wave analysts were already anticipating the good news. So, the next time you find yourself waiting for the news, do not forget to take a look at the charts. The answer to your questions might already be there.