On December 3rd, EURUSD rose sharply from 1.0540 to above 1.0980, following the European Central Bank’s decision to lower the deposit facility rate to -0.30% and ECB’s willingness to extend its asset purchasing program to the end of March 2017 or beyond, if necessary. But did we need to know what the ECB was going to do, in order to predict EURUSD’s reaction? No. And we can prove it.
On November 25th, eight days before ECB’s announcement, we published “EURUSD Back Up To 1.0800?”. While the pair was trading slightly above 1.0610, the Elliott Wave Principle suggested it was “not be the best time for new short positions in EURUSD“. The chart we used to make that forecast is given below.
As visible, we assumed EURUSD is in the final stages of an ending diagonal, which is a reversal pattern. This chart was all that was needed to make us forget about selling the euro. The next chart shows how the exchange rate has been developing during the last several days.
We thought 1.0800 should be seen as the first target by the bulls. Well, they not only reached it, but exceeded it by a large margin. This is another great example of the Elliott Wave principle’s ability to put you ahead of the news. Regardless of what everyone else is saying, all you need is a chart.
So, after having successfully prepared you ECB’s “surprises”, it is time to examine the prospects once again. First of all, even though we were ready for the reversal, we certainly did not expect an explosion this big. The spike EURUSD made suggests something more than just a correction is happening. We believe December 3rd gave the start of a significant recovery. The daily chart explains why.
It turns out we have a W-X-Y for (A) and an A-B-C for (B). The first thing, which comes into mind, is a flat correction, shown above. If this assumption is correct, the bulls have a long way to go, because wave (C) is supposed to exceed the top of wave (A). According to this count, EURUSD might be on its way towards 1.1720 or higher.
The second possibility is a triangle. In this case wave (C) should stay below 1.1700. However, in both scenarios, the area between 1.1300 and 1.1400 is threatened. Bears, it is time you take a rest.