This week has continued to bring us surprises in the forex market. After the almost improbable 400-pip rally in the euro-dollar last Thursday and Friday, on June 9 and 10 the euro gave back almost all those gains – just as quickly as it got them.
You've probably heard mainstream forex analysts citing various economic and news reports, explaining why the EURUSD has been so volatile lately. There is one major problem with the premise that markets are moved by the news, though. If you continue this logic, on days when there are no major economic reports, you would expect markets to go sideways. And yet even on those days the market moves, and often strongly.
June 11 was one of those days. There was nothing on the U.S. economic calendar, and apart from a couple of minor reports from the European Union economies, the day was very poor on news stories. And yet, the EURUSD gained about 130 pips that day. How come?
From an Elliott wave point of view, the answer is always the same: Blame forex traders' collective mindset. After all, currency exchange rates only move because traders move them. And believe it or not, by studying Elliott wave patterns in forex charts, you can often see ahead of time in which direction traders are likely to push prices.
Case in point: Take a look at these two Elliott Wave International's Currency Specialty Service forecasts from June 10 and 11.
Need a forex forecast? EWI's Currency Specialty Service gives you forecasts of the major and minor currency pairs 24 hours a day. Get instant access now.
Here's the daily forecast and chart that subscribers saw on the evening of June 10 – several hours before the June 11 rally began (some labels have been erased for this publication):
Update For: Wednesday
Posted On: Tue, 10 Jun 2008 23:22:00 GMT
EURUSD [Last Price]: 1.5467 [Bottoming?] Despite the Monday/Tuesday fall, EUR$ has yet to cross below any level that rules out a bullish outcome. The chart shows one possible count, a bullish triangle...
And then on the morning of June 11, just as the EURUSD was really getting going, a Currency Specialty Service intraday update published this chart and forecast for subscribers:
June 11, 09:26 ET/13:26 GMT
[EURUSD] Last Price: 1.5507
[Looking for support] …we continue to favor the upside. The rise from 1.5441 isn't clearly in five waves, but does consist of a series of higher highs/lows.
The sooner you accept the fact that news doesn’t create trends, the fewer surprises you will get while trading. Trends are created by traders' reaction to the news -- and their reactions, in turn, are determined by their hopes, fears and expectations. Or, in one word, by collective emotions that are reflected in Elliott wave chart patterns.
What's next for the EURUSD? Find out now with 24-hour-a-day forecasts from EWI's Currency Specialty Service. Get instant access now.