When on April 18 the Standard & Poor's ratings agency downgraded the U.S. credit outlook to negative, the U.S. dollar didn't immediately crash -- it actually gained that day.
That surprised a lot of people. But just one day later the dollar started to lose ground. On April 21, the EUR/USD (most-watched forex pair) pushed above $1.46, the level it hadn't seen in over a year. "An unpalatable mix of loose U.S. monetary policy and a fiscal imbalance made investors reluctant to hold the battered greenback," says the April 21 Wall Street Journal.
This explanation makes sense -- and brings up a question: Is this finally "it" for the dollar? That is, is this finally the day of reckoning the dollar bears have warned about for years?
By the logic of "fundamental" measures, the answer is yes: The U.S. credit outlook is negative, fiscal imbalances are out of control, U.S. politicians can't agree on much, etc., etc.
Yet the dollar rallied after the U.S. credit outlook got slammed on April 18 -- so, obviously, the market's reaction to news doesn't always follow the "fundamental" logic. So who's to say the dollar won't surprise everyone again and rally despite all the "crash and burn" reasons?
Technical analysis looks at the market's internal measures rather than external factors. It offers you a more objective way of assessing the trend. For example, it was Elliott wave analysis, not "fundamentals," that allowed EWI's intensive Currency Specialty Service to make this bullish EUR/USD forecast on Tuesday, April 19 -- right before the EUR/USD zoomed above $1.46.
Update For: Wednesday
Posted On: Tue, 19 Apr 2011 19:09:22 GMT
EURUSD
Last Price: 1.4341[Higher, into a top] The euro recovery from 1.4156 must extend to five waves... [The dollar] remains vulnerable, and that allows for a new euro peak.
No market-forecasting method is always 100% right. But the reason Elliott wave analysis works is because it understands that market participants don't react to the news in a linear way -- i.e., "good news: market up; bad news: market down." Rather, prices move in a way in which fear and greed, the markets' two main emotions, prompt them to.
Elliott wave patterns in forex price charts reflect those emotions, making markets probabilistically predictable. Our latest intraday and daily forex forecasts are online now.
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