EURUSD bulls must be pleased. The pair is trading in the vicinity of 1.1100 after rallying all the way up from 1.0850. On top of that, the recovery took less than seven trading days, so it must have caught many traders off guard. So why did EURUSD rise so suddenly and how to be prepared when the next violent reversal happens? Our answer to these questions is the Elliott Wave Principle, which we applied to the 4-hour chart of EURUSD, shown below. Then, we included this chart in the October 24th premium analysis issue and sent it to clients.
We thought EURUSD was in the final stages of a (w)-(x)-(y) double zig-zag correction. Within a double zig-zag, each wave has a three wave structure, so we needed to take a closer look at wave (y), in order to determine what is left of it. We immediately noticed that wave (y) looks like an a)-b)-c) simple zig-zag with a triangle in wave b). Then, what really mattered was wave c). It had to take the shape of a five-wave impulse before the entire (w)-(x)-(y) pattern was over. Judging from the 4-hour chart above, we assumed wave c) was either over or near completion. In addition, the relative strength index was showing the typical divergence between waves iii and v of c), which gave us another reason to expect the bulls’ return soon. Now, let’s how EURUSD looks like today, November 2nd.
EURUSD initially fell to 1.0850 on October 25th. Nevertheless, traders, who joined the bears near that level must be deeply regretting it. Selling just because the price is falling is not a good strategy. No trend lasts forever and that is why traders need to anticipate reversals. In this case, EURUSD gave a lot of warning signs that it was going to change direction soon. But it takes a lot of time, patience and practice to develop a trained eye for Elliott Wave patterns, in order to be able to spot the signs. We can help.
What to expect from now on? What is the bigger picture saying? Is EURUSD going to continue even higher or the resistance near 1.1100 would turn out to be too strong for the bulls to breach? Prepare yourself for whatever is coming. Order your Elliott Wave analysis due out every Monday at our Premium Forecasts section. Stay ahead of the news in any market with the Elliott Wave principle.
