EURUSD rose after the ECB policy announcement on December 3rd, then fell following the FED’s decision to raise the interest rates on December 16th. Should we wait for the next major statement from the US or the European Union? Is it possible to get a clue about where the EURUSD exchange rate is most likely to be aiming next, without having to wait for Mario Draghi or Janet Yellen to speak? We believe it is, by applying the Elliott Wave Principle to the hourly chart of the pair, shown below.
The rally between 1.0540 to 1.1060 seems to be a leading diagonal. Leading diagonals are very similar to ending diagonals, except for the fact that they occur in the beginning of the sequence, instead of in its end. This means you could expect to see a leading diagonal in the position of wave 1 of an impulse or wave A of an A-B-C zig-zag correction. And just as every regular five-wave impulse is followed by a three-wave correction in the opposite direction, every leading diagonal is supposed to be retraced in three waves, before the larger trend could resume. This is exactly what we believe is visible on the above-shown chart. If this assumption is right, EURUSD could be expected to start rising from now on, since the 5-3 wave cycle seems to be complete and wave (3/C) to the north should take the rate much higher.
However, this is not the only way to count EURUSD’s price action. Another probable scenario is given on the next chart. Fortunately, it is bullish again.
According to this possibility, wave (1/A) ends at 1.0980. The rest is an unfinished expanding flat correction. Three waves down for A, three waves up for B to a new high, and five waves down for C is the desired wave structure of every expanding flat. If this is the correct count, we should expect one more bottom in wave 5 of C of (2/B), before the bulls finally return.
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Both counts are equally probable. Luckily, both of them are pointing up, so , in our opinion, the sell/buy dilemma is out of the equation. The invalidation level for both counts is far down at 1.0540. Having in mind the strength, demonstrated by the support area near 1.0800, we see no reason to worry about it now. As long as it is safe, EURUSD could be anticipated to climb to 1.1100 or even higher.
