Do you ever get the feeling that the conventional market analysts quoted in the financial press are, all too often, a step behind the curve?
They try hard to explain how news stories or actions in one market are responsible for reactions in another, and they are very good at it. For example, when the U.S. dollar gained against the euro on Monday (May 19), they said,
"The dollar gained the most against the euro in four days…as global stocks rallied and the index of leading U.S. economic indicators unexpectedly rose in April. The dollar may gain further on speculation [about] minutes from the Fed's meeting last month…" (Bloomberg)
But just hours later, in early trading on Tuesday (May 20), the USD started to slip. By lunchtime U.S. Eastern on Tuesday, it lost some 170 pips to the EUR. That erased all of Monday's gains and took the EURUSD exchange rate to a fresh four-week high. Here's how analysts explained that surprising move on Tuesday morning:
"The dollar fell the most in almost two months against the euro as the price of oil rose above $129 for the first time and speculation increased that the European Central Bank will keep interest rates high." (Bloomberg)
OK, let's accept for a second that the dollar did, in fact, fall on Tuesday because of the spike in oil price. Does this mean that if you’re a forex trader, you have to forecast not just the dollar and euro, but oil prices too? According to the conventional wisdom -- yes, you do. Trouble is, anyone who has traded currencies long enough will tell you that expecting the USD to fall every time oil makes a new high is a false hope: maybe it will, maybe it won't.
So what's the point of the "oil up, dollar down" explanation, then? Other than making yourself feel good for having "figured out" the market, not much. You're explaining the move that has already happened. Great, but what will the EURUSD do tomorrow?
Here is a method that actually does help you anticipate the market: Elliott wave analysis. Echoing Elliott Wave International's daily forecast, a Currency Specialty Service intraday update said this on Monday evening, several hours before Tuesday's EURUSD advance began:
Need a forex forecast? EWI's Currency Specialty Service brings you forecasts of the major and minor currency pairs 24 hours a day. Get instant access now.
[Monday, May 19] 18:23 ET/22:23 GMT
[EURUSD] Last Price: 1.5526
[Bottoming?] There was little trade between 1.5525 and 1.5560, so if the trend is up, there should be little difficulty moving higher... the fall from 1.5632 looks stretched and we expect at least an attempt to bottom. A rally above 1.5570 would be constructive and, as always, we'll be looking at the structure to see if it unfolds in corrective three waves or impulsive five waves.
There is a slew of economic data coming out later this week; here are some highlights:
- Wednesday: Fed's minutes and Germany's Ifo Business Climate Index
- Thursday: U.S. jobless claims and Europe's Consumer Confidence Survey
- Friday: Existing U.S. home sales
How will the EURUSD and other currency pairs behave on these days? Don't get caught up in the game of "postmortem" explanations. Instead, anticipate. Our Currency Specialty Service can help – now.
FREE 49-minute Webinar Offer. Besides 24-hour-a-day forecasts for all major currencies, 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 in forex trading?
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- How do I identify a wave pattern in real time on my screen?
To watch this free 49-minute webinar now, subscribe to EWI's Currency Specialty Service now and click on the "Video/Education" tab once you have logged in.