Euro/Dollar Parity: A "Sight Unseen" in 20 Years. But NOT a Sight Un-Foreseen!
As 2021 began, the image of a soaring euro/falling dollar seemed to speak for its "market fundamentals" self. But that EUR/USD image was sorely mistaken
by Nico Isaac
Updated: August 11, 2022
On July 31, a celebrated French physicist broke the internet when he tweeted this photo and caption:
"The nearest star to the Sun, located 4.2 light years away from us... taken by the James Webb Space Telescope. This level of detail... A new world is unveiled every day." (August 7 CNN)
The image went viral, with hundreds of thousands of shares, re-tweets, and comments about the awestriking nature of the cosmos.
Days later, the scientist confessed the photo was a hoax; the object was, in fact, a close-up of a slice of chorizo sausage taken against a black backdrop. (Next, they'll tell me the moon isn't really made of cheese, either!)
But, in the scientist's own words, the prank was meant in good taste (pun intended!). His intention: "To urge caution regarding images that seem to speak for themselves."
On that note, I invite you to look closely at the chart of EUR/USD, the world's biggest forex market, below. It captures the euro's 2020 bull run, stopping on the last day of the year, December 31, 2020, when the euro orbited its highest level against the U.S. dollar since April 2018.
Now, according to the mainstream experts, this image seemed to speak for itself. What it said was, the euro's winning streak was here to stay. On December 30, 2020, CNBC described the U.S. dollar as being "sucked into a downward spiral" and wrote:
"The next stops for the [euro] bull train are $1.2413 and $1.2476, on the way to the 2018 peak at $1.2555.
"The prospect of a brighter 2021 has lessened the need for the safe-haven dollar, while burnishing the attraction of riskier assets especially in emerging markets."
A January 2, 2021, MarketWatch confirmed the U.S. dollar had just suffered its first annual drop since 2017, going from "life preserver to castaway in a topsy-turvy 2020 that many investors think marks the start of a downtrend for the currency."
It also added that a "euro move to 125 is destined to happen as 2021 gets underway."
Finally, on January 4, 2021, Yahoo Finance emphasized the mass dollar liquidation by currency traders and said, "USD bulls for now will have to stay on the bench at least for the near term."
And yet, upon closer inspection, the image before the financial world was not of a blazing bullish euro star. As the calendar year switched from 2020 to 2021, the euro peaked without ever reaching 125, and reversed in a precipitous sell-off into July 14, 2022 -- the day the EUR/USD reached parity for the first time in 20 years!
From the beginning of the euro's reversal, our Elliott wave optics cautioned against taking the bullish mainstream consensus at their word. On December 31, 2020, our Currency Pro Service looked through their Elliott wave "telescope" and identified a clear topping pattern in place on the EURUSD price chart. From our viewpoint, parity was not a matter of if:
"EURUSD has satisfied the minimum expectations to complete an impulsive rally from 1.1603, which might also complete the advance underway from March. It's premature to call a top in place, but the risk is shifting to the downside.
"The upcoming decline should approach parity.
"The second chart shows that the crowd is nearly unanimous in the belief that the Euro rally has further to go. DSI measures group bullishness, and with more than 90% of the group favoring the Euro, there are few left to pile in... Like the divergence between price and momentum, the extremes warn the trend is mature."
As is the case with all analysis, there are times when you get distracted from your original forecast, and we did wonder, as the market was working its way sideways, if an alternate, bullish wave count was going to take the status of the preferred bearish call, but at the end of the day, this next chart captures the EUR/USD's downward spiral into parity on July 14, 2022
On July 13, the New York Times called parity in the world's most liquid currency pair a "sight unseen since December 2002, the early years of the currency's existence."
But it was not, at least from an Elliott wave perspective, a sight un-foreseen!
Trading currencies carries risk, and not all Elliott wave interpretations are correct. But if you desire an objective image of market trends, our Currency Pro Service is the premier record of choice. Right now, Currency Pro Service presents labeled price charts just like these of the EUR/USD, with critical price levels that help traders manage risk every step of the way.
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