Two Months Ahead of the 400-Pip Slide in EURUSD

Economic and fiscal steps taken to help the global economy rebound from the COVID-19 crisis are still in effect in both U.S. and EU. The amount of stimulus by the Fed far eclipsed the measures taken by the ECB. Direct unemployment payments are even creating a labor shortage. Many people prefer to rely on government money instead of looking for work. Coupled with short-term rates at near zero and 10-year treasury yields barely above 1.30%, inflation fears seem reasonable. Yet, the U.S. dollar, which would suffer the most from a surge in inflation, has been rising against the euro. Over the past two months, EURUSD is down roughly 400 pips.

If you think the slide in EURUSD makes no economic sense, we tend to agree. However, it did not come out of the blue to Elliott Wave analysts. Focusing on what the market itself is telling us via its price patterns helped us prepare for the recent plunge before it happened. The chart below, sent to our subscribers on June 14th, was all that was needed.

The chart above revealed a textbook impulse pattern from 1.0636 to 1.2350, followed by what we thought would evolve into a simple A-B-C zigzag correction. The cold truth the bulls – us included – had to accept was that wave C was still missing.

Rising US Inflation Should Have Sent EURUSD Higher. It Didn’t

Wave A looked like a leading diagonal, while wave B was a simple a-b-c, where wave ‘c’ was an ending diagonal. This meant more weakness in wave C can be expected going forward. As long as EURUSD traded below 1.2218, it made sense to prepare for a drop below 1.1700. Almost two months later now, the pair is already knocking on that support level.

As of this writing, today’s low in EURUSD stands at 1.1716, just 12 pips above the bottom of wave A. The rate lost a total of 393 pips since we sent that update on June 14th. It looks like a breach below 1.1700 is only a matter of time now. Then what?