Since mid-July, the U.S. dollar has gained almost 20 cents against the euro. Back then, the euro-dollar exchange rate stood near $1.60; it's now near $1.40.
This 13 percent gain by the USD may not sound like much – unless you're an American tourist traveling to Europe. But if you look at it from a currency trader's perspective, that's about 2000 points (or pips) in one direction – down – in less than two months. The best way to describe this action in the EURUSD is – "falling like a rock."
The USD's comeback has been staggering in its persistence. And let's not even bring up the dollar's "fundamentals" trying to explain it: they simply make no sense. Let economists wreck their brains (and financial models) trying to figure out why, while the U.S. government is grasping at straws trying to save the mortgage industry and economy from collapsing, the dollar is gaining like there is no tomorrow. Clearly, the laws of physics don't apply to the currency markets.
And you know what? For a forex trader, it doesn't really matter why the dollar has been gaining. For a trader, a much more important question is – what now? What goes up must come down, and it's true in forex trading as well. So how long can the buck continue its bull run?
Get the latest forex forecasts inside EWI's Currency Specialty Service now. Here's how.
The very basic Elliott wave analysis boils down to looking for three- and five-wave patterns in market charts. Five waves are impulses; three-wave moves are corrections. When an impulse ends, a correction always begins. No exceptions.
And here's the chart of the EURUSD, copied from the latest, September 09 daily forecast of EWI's Currency Specialty Service (some labels have been erased for this publication):
Look closely at the chart pattern circled in red, above. Can you count 5 waves within it? You're not alone.
"…the decline underway since mid-July is stretched and possibly in five waves," writes Currency Specialty Service editor Jim Martens in the September 09 daily EURUSD forecast. "Given the visible structure and the momentum profile, I'm not about to chase the market lower."
From an Elliott wave perspective, the EURUSD is likely near a bottom; you can get the exact forecast for the days ahead inside the Currency Specialty Service. So don't be surprised if the euro takes the upper hand in the days ahead. I only wonder how the economists will explain it?
NOTE: Mark your calendars! On Wednesday, September 17, at 4 PM Eastern (New York) time, EWI's Senior Currency Strategist Jim Martens is hosting a free, live 40-minute webinar titled "Anatomy of the Trade." Jim will focus on how you can turn the Currency Specialty Service forecasts into actionable forex trading strategies.