What a day.
The stock market took a blow on Wednesday (Nov. 19), yes – but look at currencies! The euro-dollar exchange rate, known to currency traders as the EURUSD, started the day quietly range-trading around $1.26. Then, at 8:50 AM, out of the blue, all hell broke loose.
By 10 AM, the EURUSD rallied over 200 pips. But that wasn't the end of it, because just as it hit $1.28, it reversed and erased the entire rally by taking the EURUSD over 300 pips down, way below where it started the day.
If you're a forex trader who "doesn't really believe" in technical analysis, this may be the time to reconsider. I say this because I find it very interesting that the mainstream analysts, who normally confidently attribute the day's action in the EURUSD to a host of fundamentally based "reasons," somehow were a little quiet Wednesday afternoon.
And I don't blame them – because seriously, what single economic report or number could have caused the EURUSD to spike AND crash like that, all on the same day?
Let's look at it from a technical analysis perspective. In the previous two Free Updates on currencies, we showed a couple of EURUSD charts that have been exhibiting an Elliott wave pattern called a contracting triangle. Here's the chart we showed in the November 17 Free Update:
Today's whipsaw action in the EURUSD, while severe, has not changed the look of that triangle. In fact, as our Senior Currency Strategist pointed out today, "this if often how they end." This is the chart you can see (fully labeled with Elliott wave symbols) inside our Currency Specialty Service right now:
Keep in mind that, according to the Wave Principle, triangles can only occur in the wave four, B or X wave positions. This one seems to be playing the role of a fourth wave. If you know your Elliott, then you know what that implies for the larger trend from here. (Hint: It ain't "the end of the U.S. dollar.")
Still, in the short-term, the EURUSD has a couple of options. The intraday updates inside our Currency Specialty Service will keep you up-to-date 24 hours a day. (Details.)