Lots of recent news stories discuss the euro's plight -- but you didn't come here for the news. You came here looking for an Elliott wave insight into the crisis.
Elliott wave analysis is often contrarian. This means that, when everyone is most bullish or bearish, we take the opposite view. Not because we just like to be different, but because Elliotticians know that the crowd is most bullish at tops and most bearish at bottoms, at the end of the wave pattern.
That's the sad irony of how investor psychology works. The crowd is most convinced that the trend is here to stay just as it's ready to reverse. Think real estate in 2006, the stock market in early 2009 -- or, most recently, the euro.
The latest reversal in the EUR/USD (the euro-dollar exchange rate and the most actively-traded forex pair) came on June 7, near $1.47. Guess where the majority of forex traders thought the EUR/USD was going from there? You're right: According to the June 7 Daily Sentiment Index reading (trade-futures.com), only 6% of all traders polled were bullish on the dollar; 94% were convinced the EUR/USD would rally higher.
But it didn't. The Elliott wave pattern was ending, and the EUR/USD tumbled: first from $1.47 to $1.43 and then, after a brief recovery, to the lows in the $1.40 range we saw on June 16.
And now the mainstream financial opinions are catching up to the Elliott wave count. Today on CNBC, one analyst said that if Greece defaults, then even $1.20 for the EUR/USD would be a reasonable -- and quickly attained -- target.
You should know that although wave analysis is a contrarian method, there is one point in the Elliott wave pattern when the Elliott wave perspective matches that of the mainstream. It's called "the point of recognition" -- when the crowd, for a brief moment, is right. It comes in the third wave of the Elliott wave sequence -- more precisely, in the middle of the third wave, the so-called third-of-a-third.
Here's a EUR/USD chart our own Currency Specialty Service published on June 14 -- before the worst of the Greek default rumors had surfaced, and while the EUR/USD was still trading near $1.45.
As this June 14 chart makes clear, that day the euro probably entered a third-wave decline. Do you know the implications of that?
Elliott wave analysis can explain them to you right now. Read our latest euro forecasts in the Currency Specialty Service -- here's how >>