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EUR/USD: Below $1.40, Again
Understand what the forex market is, and you'll understand what guides it

By Vadim Pokhlebkin
Tue, 12 Jul 2011 15:45:00 ET
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The euro has fallen to a 4-month low against the U.S. dollar -- on "growing fears that Europe's debt maelstrom could engulf Italy." (July 12, Wall Street Journal) 

This explanation sounds plausible…until you study the timeline of events and see when the slide in the euro actually started. The news of the European debt crisis spreading to Italy only hit the headlines in earnest on July 8 -- but the EUR/USD peaked on July 4, four days prior.
 
On July 4, the EUR/USD was confidently trading near $1.46, and that day's WSJ reported how "...the euro brushed aside concerns triggered by Standard & Poor's warning on Greece's debt." Yet, despite all that euro-bullishness, the very next day the EUR/USD began to slip. By the time the news of Italian contagion hit hard on June 8, the euro-dollar had already fallen to near $1.42.
 
To blame the Italian debt situation for the euro weakness is convenient, but not accurate. Something else started the decline. What? (No, Moody's downgrade of Portugal's debt to "junk" doesn't fit, either: That was on July 6, two days after the EUR/USD had topped.)
 
Let's think for a moment about what the forex market is. People say "the forex market did this or that" making it sound like it's some autonomous entity that acts as it pleases. Far from it. Just like "the economy" functions because people like you and me put our pants on each morning and go to work, so forex markets function when people -- forex traders big and small -- buy and sell currencies.
 
In other words, forex (like any market) is a group of people betting on the future. Their choices reflect their perceptions, hunches and feeling about what tomorrow may hold. And, as you may know, the Elliott Wave Principle teaches that whenever groups of people come together in one activity, a collective pattern in their behavior emerges. In other words, the forex crowd does not act unpredictably.
 
Forex markets move in what the Wave Principle describes as sequences of waves unfolding in recognizable patterns. And because it's a pattern, you can establish where price are and make a probabilistic forecast as to where they should move next.
 
It was the recognition of a bearish Elliott wave pattern in the EUR/USD chart that helped EWI's Currency Specialty Service make this bearish EUR/USD call on Tuesday, July 5 -- three days before "the bad news" from Italy (some Elliott wave labels have been erased for this article):
 
Update For: Wednesday
Posted On: Tue, 05 Jul 2011 19:29:52 GMT
EURUSD Last Price: 1.4432
 
 
[Lower] The impulsive decline from 1.4579 suggests wave ii (circle) is complete and the euro has started lower a sustained and extended decline in wave iii (circle).  As labeled, a third wave would extend well beneath 1.4074…
 
This chart and forecast illustrate the power of human emotions, which move market prices (news or no news) in the direction where the crowd psychology guides them. This is also an example of Elliott wave analysis at work, making forecasts for price moves that are yet to happen.
 

You can get the latest Elliott wave insights into the EUR/USD's likely path from here now, with EWI's Currency Specialty Service. Here's how to get started >>


 
EWI's intensive Currency Specialty Service keeps its finger on the pulse of the world's most traded forex markets to give subscribers insight into the latest emerging opportunities and Elliott wave developments. Get 24-hour-a-day coverage for the markets you follow:
 
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