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Forex Markets: Ain't Misbehavin'

Currencies may seem unruly and unpredictable, but they are anything but

by Nico Isaac
Updated: March 24, 2017

A few years ago, I asked my close friend and avid forex trader why he decided to try his hand in the extremely volatile currency markets.

His reply went something like this:

"I'm the father of two teenage boys. So, I figure I have plenty of experience dealing with total anarchy!

"From my boys, all I get is gray hair and night terrors. At least with the markets, I have a chance of getting something back in return."

Sound familiar?

It's a common assumption, really. That financial markets, especially forex, are akin to teenagers with raging hormones: They're impetuous, unpredictable, and rebellious. Sometimes they respond like rational beings; other times, they make no sense at all.

But here's the thing. This assumption isn't correct, at least not from where I'm sitting!

See, according to the Elliott wave method of market forecasting, markets do respond to a specific authority -- namely, that of collective investor psychology. And they do so in observable Elliott wave patterns directly on their price charts.

Take, for example, the recent performance in the Australian dollar/U.S. dollar exchange rate (AUDUSD). On March 24, the Aussie fell to a 2-week low against the greenback. And, according to some mainstream experts, the currency was acting on its own, nonsensical impulses. Writes one news source:

"As for the reason behind the weakness in the Aussie dollar, there was none... The move was not triggered by any specific news." (Business Insider)

We agree. The move was not triggered by any specific "news." In our opinion, it was triggered by a bearish Elliott wave pattern on the AUDUSD's price chart.

On March 21 -- the day of the AUDUSD's peak -- our Currency Pro Service warned of an imminent slide in the Aussie's future and wrote:

"It's still premature to conclude Aussie has peaked, but the impulsive rally from 0.7491 and the momentum divergence that has accompanied the fifth wave suggests upside potential is limited.

"From not much if any above current levels AUDUSD should turn lower and test the downside. The five-wave rally from 0.7491 warns that upside potential is becoming limited and a setback is coming due."

The next chart captures the Aussie's turn down that followed:

We're not seriously saying that finanical markets are better than your teenage kids! But, with the aid of objective Elliott wave analysis, it is possible to interpret and anticipate a market's near-term behavior.

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