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EUR/USD (Forex): From "Chaos" Comes Order
Despite the recent "chaos," the EUR/USD maintains its Elliott wave structure.
The enormous and surprising rally in the euro-dollar exchange rate that started on December 9 took the EUR/USD 1900 pips (or 19 cents) higher over the course of just 9 days.
Then on December 18, the rally ended just as abruptly as it began. From the $1.47 top, the EURUSD dropped like a rock down to $1.38 on Dec. 19 – that's 900 pips in the other direction in one day.
Now more than ever I take to heart the piece of advice that a good friend of mine, a currencies trader with 15 years of experience, once gave me: Be careful trading in December, he said. The forex markets thin out around the holidays, making it easier for big players to push the prices around. Whew, was he right.
In the latest, December 26 Daily Forecast, our Currency Specialty Service reminded subscribers of the two important observations about the rally:
Observation #1: "…the EUR$ rally failed near the 61.8% retracement of the decline from above 1.60."
Why is that important? 61.8% is a Fibonacci ratio between waves that forex and other markets frequently adhere to. In Elliott wave analysis, 61.8% can serve both as a target and a support/resistance level for prices; in this case, it served as a resistance. Interesting, isn't it: As chaotic and confusing as this hair-raising action in the EUR/USD was, the pair still "respected" arguably the most important retracement ratio in wave analysis?
Observation #2: "…the subsequent setback is in a corrective three-wave [pattern]."
Here's what our Senior Currency Strategist Jim Martens refers to: From the $1.4717 high on December 18, the EURUSD fell in three waves, as this chart from the December 26 Currency Specialty Service Daily Forecast shows (online now; some labels have been erased for this publication):
That's also important because, if you are familiar with the basics of Elliott, you know that all markets moves fall into two main categories: impulses and corrections. Impulses have a 5-wave internal structure and point in the direction of the larger trend. Corrections always have three internal waves and go against the trend. This diagram shows an idealized Elliott wave progression:
The bottom line is, despite all the recent "chaos," the EUR/USD has maintained its Elliott wave structure. As a result, the pair could be ready for another significant opportunity soon. Get the specifics now with Currency Specialty Service. Here's how.
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