You've probably noticed how conflicting the mainstream financial media's analysis of the euro-dollar exchange rate has been over the past few days.
On the one hand, "Euro shows signs of end to bull run," reported The Financial Times on May 1 – apparently because, "Many economists are reaching the view that eurozone growth has slowed to the point where the European Central Bank will have to cut interest rates..." Add to that a recent slide in the Eurozone's economic confidence and fears that "US fever could be contagious" – and you'd have to agree, things are looking bearish for the euro.
On the other hand, on Monday (May 5), "The euro rose against the dollar… on speculation the European Central Bank will...leave its main… rate at 4 percent when policy makers meet May 8, according to all 53 economists in a separate Bloomberg News survey." (Bloomberg). Hmm. Add the speculation that, "Gulf states are considering dropping their pegs to the dollar…" and well, that's kind of bullish for the euro, isn't it?
But then, "[Currency] Traders are betting for the first time since December 2005 that the dollar will gain versus the European currency, according to figures from the Washington-based Commodity Futures Trading Commission..." (Bloomberg)
So, which is it? Let's turn for answers to Jim Martens, Elliott Wave International's Senior Currency Strategist. "Market moves based on expectations, not facts..." says Jim. "You can't predict the market from the news available at the time. That's why we look for reoccurring Elliott wave price patterns."
Elliott wave patterns in currency charts are the real predictors of the future market behavior. When you first use Elliott in your forex trading, you will notice an immediate difference: objectivity. The word "speculation" is simply not part of the proper Elliott wave lexicon.
For example, on Monday, May 5, the EURUSD exchange rate rallied about 100 pips: the euro took the upper hand. Take a look at this forecast for May 5 that Jim Martens posted in his Currency Specialty Service on May 3, before the rally started (excerpt):
Update For: Monday
Posted On: Sat, 3 May 2008 19:57:00 GMT
EURUSD [Last Price]: 1.5424
[Bottoming! HIGHER] Perhaps I'm being overly stubborn, but I am not convinced that the dollar bottom is in place... The question is whether EUR$ will dip below 1.5342 to complete a flat [correction], or whether it will turn higher as the market consolidates above 1.5342 to compete a triangle. If you've been watching the financial news you must realize that everyone (and their brother/sister) believe the dollar bottom is in place. The belief… is so strong that its recent gains are being cited as the basis for softer oil prices, falling gold... and the bursting of the commodity bubble. I'm always skeptical when everyone seems to be in agreement regarding the trend. It does happen on occasion, but it's rare that everyone has it right.
As you can see, based strictly on Elliott wave patterns and markets sentiment indicators, EWI's Jim Martens was able to make a concrete, bullish forecast for Monday. Elliott wave-based forecasts will not always be correct, but there is one thing you can expect most of the time: Elliotticians don't just speculate about the trend – they forecast it.
Get Elliott wave-based forecasts for the EURUSD now, before the ECB meeting on May 8.
Your Currency Specialty Service subscription also gets you instant access to a free 49-minute webinar on how to trade forex with Elliott wave forecasts. The webinar, recorded live on March 25 by EWI's Senior Currency Strategist Jim Martens, covers topics such as:
- How do I identify trade set-ups?
- How do I set protective stops using Elliott to help me manage risk?
- How do I set price targets using Elliott?
- How do I identify a wave pattern in real time forex trading on my screen?
To watch this free 49-minute webinar now, subscribe to EWI's Currency Specialty Service and click on the "Video/Education" tab once you have logged in.)