Yesterday the EURUSD forex pair made another new low and the bears are probably getting more and more confident. But even the strongest of trends are interrupted by corrections. Should traders be preparing for one such correction now?
More than three weeks ago, on October 7th, we published “EURUSD rate aiming at 1.28”. The forecast stated, that EURUSD is probably forming its wave IV correction, which should take the rate to at least 1.28, before the trend resumes in wave V to the downside. The chart below shows the EURUSD exchange rate as it was in the beginning of last month.
Nine days later, on October 16th, we gave you an intraday update of the situation, because we thought wave IV was already over and it was time for wave V to begin. In “EURUSD to fall below 1.25?” we used the following chart:
As visible, wave IV did manage to climb above 1.28 in corrective fashion, which brought us to the conclusion that we should prepare for the next decline. It was supposed to lead prices to a new bottom, lower than 1.25. Those of you, who have been following this pair, probably know how this forecast developed. Anyway, the next chart illustrates it.
On October 16th the euro was trading in the zone of 1.2780 against the US dollar. Yesterday, October 31st, it fell to as low as 1.2484, thus making the new bottom we have been waiting for. This is a 300-pip drop-off in just two weeks time. Now let’s see how the whole decline from 1.40 looks like with the new developments.
The 4-hour chart above suggests that we have the minimum requirements to label this sell-off as a five-wave impulse. According to the Elliott Wave Principle, every impulse is followed by a three-wave correction in the opposite direction. Does this mean we should expect an immediate recovery? No, because wave V does not seem to be over yet. In order to be completed, it has to be a regular impulse or an ending diagonal. So far, it is none of the above. That is why we anticipate more new lows ahead before the corrective rally begins.
EURUSD provided us with a good example of how the Elliott Wave Principle can help us prepare not only for one, but for two consecutive moves. We want to highlight the fact, that there have been plenty of news and events concerning EURUSD since October 7th, but we did not need to wait for any of them. We were prepared for what should happen long before its “cause” was known to the public. All thanks to Ralph Nelson Elliott and his findings.