EURUSD bulls had nothing to complain about last week, as the pair rose from 1.2248 to a new 3-year high of 1.2555. It is no secret that the pair has been in an uptrend, especially since it has been rising during the entire 2017. Still, trends always include moves in the opposite direction. The most recent one saw EURUSD decline from 1.2538 to 1.2206, where something called a Fibonacci support discouraged the bears and gave the start of last week’s rally. Take a look at it on the chart below, sent to clients before the market opened last Monday, February 12th.
Since EURUSD was in an uptrend, it made sense to expect a five-wave impulse pattern to the upside to emerge from the bottom at 1.1554. As visible, by last Monday, the pattern’s fourth wave was already touching the 38.2% Fibonacci level, where fourth waves usually terminate. According to the Elliott Wave Principle, if this count was correct, EURUSD was supposed to recover and reach a new high in wave (v), unless waves (iv) and (i) overlapped at 1.1961. A week later, this is how the price chart of EURUSD looks like today.
The exchange rate started climbing right away and five days and 300+ pips later exceeded the top of wave (iii). While the dollar’s decline, and thus the Euro’s rise, could have been explained with the higher than expected inflation in the United States, all Elliott Wave traders needed was a chart and an eye to spot the support cluster formed by the 38.2% Fibonacci level and the lower line of the trend channel, drawn through the highs of waves (i) and (iii).
Now, are the bulls going to take out the resistance of 1.2550 after the completion of the five-wave pattern from 1.1554? What does the big picture outlook say? Two questions our EURUSD premium analysis holds the answers to.