NEW YORK, Jan 11 (Reuters) - The euro rose broadly on Tuesday but gains may prove fleeting after a pledge by Japan to buy euro zone bonds failed to calm fears of a sovereign debt crisis spreading to Portugal and Spain.
On a chart, the January 11 EURUSD rally looks less impressive than it sounds in the news: First a dive down early in the day -- and only then a feeble rise that barely mustered the strength to breach the psychologically important $1.30 level late in the evening.
If you look closely, what this chart makes clear is that the actual EURUSD rally didn't start on January 11 -- it began on January 9. That's when Elliott Wave International's Currency Specialty Service issued this bullish forecast:
Allowing for a brief corrective recovery… The upcoming recovery might find resistance in the 1.3019, though we'll look upon any three-wave bounce as a [finished] correction.
The reason for this bullish view on January 9 was the Elliott wave pattern in the EURUSD. As you can see, Friday's low likely marked the bottom of wave one. In Elliott wave analysis, after a wave one comes wave two (of a five-wave impulse), so a rally (in wave two) was due -- news or no news. If it weren't the euro-"bullish" news from Japan and euro zone, analysts would have attributed the rise to some other factor.
Forex analysts now also say that, "The euro could easily resume its downward path given mounting unease over a heavy schedule of debt issuance by southern European countries this week." But again, by looking at the wave patterns, you already know that after wave ii is over, wave iii down should carry EURUSD lower; you don't need to wait for the news to know that. That's the edge wave analysis gives you.
The question is, how close is wave ii to being finished?