Bulls are getting more and more excited about EURUSD as it is getting closer to the 1.40 mark. But if we want to draw a line between financial decisions and emotions we need to look at the charts, because they show what is really going on in any market. For the purpose of analysis we will start from the big picture on the weekly chart of EURUSD and then walk through daily, 4-hour and 1-hour charts.
And the weekly chart suggests for a triangle in wave “X circled” that is near its completion. Triangles are continuation patterns signaling for one last move in the direction of the larger trend. In our case that last move should be wave “Y circled”, which is normally expected to form a bottom in the 1.10 zone. In order to determine what is left of wave (E) of the triangle, we have to get a closer look on the daily chart of EURUSD.
On the daily chart we see some very “slow and choppy” price action – a hint for an exhausted trend. However, there is still some room for EURUSD to rise and maybe reach above 1.40, but not much higher, especially if our idea of an ending diagonal comes true. Of course, at this stage it is only an idea, but let’s see the internal wave structure of EURUSD from the beginning of 2014.
2014 did not begin well for EURUSD, but the pair managed to find support in early February and rose to a new high in the middle of March. But as you can see, that rally was limited to only three waves a-b-c in red. Why are we labeling it “1” when it is not impulsive? Because each wave of the ending diagonal has only 3 sub-waves, not 5. Furthermore, as shown below, the decline from 1.3965 to 1.3704 is also corrective.
It is a double zig-zag W-X-Y, so more strength has to be expected. In conclusion, we are bullish in the short term, but extremely bearish in the long one. If this is the correct count, EURUSD should be near a major reversal point and we still think that 2014 could be a very bad year for the European currency.