On December 16, the EURUSD – or the euro-dollar, the exchange rate between the U.S. dollar and the euro – rocketed to just above $1.41. It's now up 14 cents (or 1400 pips, in forex terms) from where it was just a week ago.
That's a huge move. Prior to it, the EURUSD went sideways for six full weeks, and watching the market became plain boring; even the news headlines all but dropped the EURUSD as a subject of discussion. That was a lull before the storm.
Now that the "storm" is upon us, the question is, is the EURUSD on its way towards the previous high of $1.60, or is this just a relief of some pent-up buying momentum? Let's look at it from an Elliott wave perspective.
Here is a chart of the EURUSD's long sideways correction that Elliott Wave International's Currency Specialty Service presented to subscribers on December 9, as the rally was starting:
If you know Elliott wave analysis, you can see one important clue about the larger trend in this chart: The move since late October has a look of a triangle. And triangles appear only in three positions within a wave pattern: a 4th wave, a B-wave, or an X-wave.
When a triangle is a 4th wave (as was the initial expectation for the one you see above) they always resolve in a violent spike in the direction of the previous trend – in this case, down. However, this triangle did not – it resolved in a strong spike up instead. What does this mean?
"…despite the $ pushing through 1.3293, eliminating the bearish triangle count, we can still count the recovery from 1.2332 as a correction. Historically, I've found if a triangle thrusts the 'wrong' way, it's often best to flip the triangle over and treat it as a B wave or an X wave."
That Elliott wave scenario had profound implications for the EURUSD. Since then, the pair has undergone even more dynamic changes to its Elliott wave pattern, with significant implications for the trend. Currency Specialty Service will get you up-to-date right now.