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EUR/USD (Forex): How to Forecast Market Moves Before They Occur
Not every Elliott wave forecast works out. But the method's objectivity still trumps most discussions about "market fundamentals."
"News stories move the markets" -- at least, that's what most investors believe. But can you predict what the market will do before the news is released? Let's look at a fresh example.
At 2:15 PM on Wednesday, November 4, the Federal Reserve Bank announced its latest decision on the U.S. interest rates. It was a much analyzed event on financial TV and in other media. With interest rates already near zero, what would the Fed do? Raise them or leave them unchanged? And how would that impact the markets?
To raise rates would mean the Fed felt better about the economy; that's a positive. At the same time, that would increase borrowing costs for businesses and consumers -- negligibly, but still. That's a negative.
To leave rates unchanged could mean the Fed was still uncertain about the economic recovery; that's not good. But borrowing would remain cheap; that's a positive.
You see the problem: For every pro, there is a con. In most discussions about the market's "fundamentals," the answer to the question "How would the Fed's decision impact the markets?" was a good news/bad news coin toss. Fortunately, "fundamental" analysis is not all there is.
Elliott Wave International employs Elliott wave analysis, a technical market-forecasting method, to anticipate future trends. It identifies patterns in market charts and makes probabilistic forecasts as to where prices should go next. As early as 9:30 on November 4, EWI's intensive Currency Specialty Service posted this intraday forecast for the EUR/USD, the most widely traded forex pair:
EURUSD (Intraday)
Posted On: Nov 4 2009 9:32AM ET / Nov 4 2009 2:32PM GMT
Last Price: 1.4801. This chart shows where EUR$ may be headed. Even under the preferred bearish count, the rally from 1.4625 could extend above 1.4862 to complete a flat correction.
The EUR/USD played out the predicted scenario well. The pair rallied all morning, and at 2:15 PM, after the Fed said it was leaving interest rates unchanged, it spiked just above $1.4900.
Not every Elliott wave forecast works out this well. But the method still has one distinct advantage over "fundamental" discussions: objectivity. Elliott wave patterns in market charts are -- usually -- either probabilistically bullish or bearish, regardless of the news. And that can simplify any trader's job.
The next few days should be exciting for currencies traders: Elliott wave patterns in the U.S. dollar are pointing to a likely development that will surprise most forex observers. Stay tuned to the latest updates 24 hours a day with EWI's intensive Currency Specialty Service. Start now.