by Vadim Pokhlebkin
Updated: January 05, 2017
Late last Thursday night (Dec. 29), I got an insistent email from a colleague.
Jim Martens, long-time editor of our forex-focused Currency Pro Service sent me this message with only a subject line:
-------- Original message --------
From: Jim Martens
Date: 12/29/16 9:16 PM (GMT-05:00)
To: Vadim Pokhlebkin
Subject: Sell those euros. Sell'em
It was around 9:30 PM when I read Jim’s email, glanced at a EURUSD chart and saw that it had spiked about 300 pips higher in after-hours trading:
At the time, news stories included some head-scratching. As our next-day Short Term Update put it,
"The [Euro] surged to 1.0654 in overnight trading. Several financial stories were at a loss for the sharp rise. "No 'particular' news seems to be driving the euro's jump," says the head of forex sales at an Asian bank. Bloomberg called the jump a "Mystery Move."
Even if the reasons behind it weren't clear, without a doubt many forex traders saw the 300-pip jump as the start of a bigger rally. But to our Currency Pro Service team it was clear it wasn’t the start of anything.
Here’s the same chart with Elliott wave labels shown:
"Sell those euros," as the subject line said. You can see why: We saw the rally as the last gasp of a wave 2 correction.
In fact, for days leading towards that spike EURUSD’s wave patterns called for the decline to resume:
When last Thursday’s "mystery" rally came up to within pips of a .618 Fibonacci resistance area, it warned us that the bottom was ready to fall out.
Which it did. On Tuesday (Jan. 3), the U.S. dollar index hit a fresh 14-year high against the euro and other competitor currencies. This Currency Pro Service chart shows you the extent of EURUSD’s decline:
In a Tuesday morning intraday update, Jim Martens wrote:
[Posted On:] January 03, 2017 09:38 AM
(Last Price 1.0393): Good morning and welcome to our intraday coverage of the first New York session of 2017. We ended 2016 suggesting the euro might experience a rough start to the new year. It's down 1.10% since Friday.
Also on Tuesday, a Reuters headline said: "Dollar hits 14-year highs after strong U.S. manufacturing data.” If only the news could really explain everything.