For six weeks now, the euro-dollar exchange rate, known to forex traders as the EUR/USD, has gone nowhere. The dollar has gained big since late November, but while we've seen some big ups and downs lately, they made almost zero net progress: Today, the rate stands near $1.3650, where it was in early February.
You may say, sure -- the U.S. "fundamentals" are still shaky, so why would the U.S. dollar keep gaining? From the conventional economic wisdom standpoint, that's true. Of course, it's the same "wisdom" that, based on the very same "fundamentals," was calling for the dollar's complete collapse in late 2009, when the EUR/USD was near $1.50. Since then, the U.S. broad economic picture has hardly improved -- yet the USD has only gotten stronger. Hmm.
Now you understand why us Elliotticians don't put much faith in the presumed effects of the economy on the markets, and vice versa. For Elliotticians, market forecasting is all about reading chart patterns; wave analysis describes thirteen of them.
The most basic patterns are an impulse and correction. An impulse has five non-overlapping waves, labeled 1-2-3-4-5, that unfold in the direction of the larger trend. A typical correction has three waves labeled A-B-C, but it can also take shape of a triangle-looking pattern, labeled A-B-C-D-E. Regardless, ALL corrections share two characteristics: 1) Overlapping, choppy internal wave structure, and 2) They all move against the larger trend.
Now, going back to the EUR/USD, take a look at the internal structure of the move over the past six weeks in the chart below. (You can see this chart fully labeled with Elliott wave symbols online now in the intraday portion of EWI's Currency Specialty Service.)
Remember, Elliott wave impulses do not overlap, while corrections do. Would you say that the action since February looks impulsive or corrective?
The corrective internal structure of the move is just one of the reasons why EWI's Senior Currency Strategist Jim Martens posted this March 10 intraday note for his subscribers:
"This is not the time to quibble over the short-term swings. Regardless of how the triangle is counted, any move into the upper half of the range represents an opportunity..."
NOTE: On March 27, you can learn from EWI's Senior Currency Strategist Jim Martens LIVE at his 1-day forex trading course. Here's what you'll learn.