EUR/USD: Prepare For Some Fireworks?

Today, the euro-dollar exchange rate, better known to forex traders as EUR/USD, is trading pretty much where it traded in early July. Despite some large ups and downs, the net progress of this currency pair has been zero. But that may be about to change.

Here at Elliott Wave International, we've been using wave analysis to forecast forex markets since the early 1990s. What these two decades of producing intensive, 24-hour-a-day updates have proven to us is this:

Elliott wave patterns in forex market charts can and do warn you of trend changes days or hours before you will hear a fundamental analysis explanation of the same move.

Looking at the charts of EUR/USD today, here's what jumps off the page. Labeled below on the chart, you can see that from the late June high of near $1.27, EUR/USD has fallen in what Elliotticians call an impulse wave pattern.

An impulse is a 5-wave, non-overlapping move. You can see below that so far, EUR/USD has likely finished only 3 waves of the impulse (labeled with the blue Roman i, ii, and iii). The sideways choppy move we've seen since the early July fits well as a wave iv.

Fourth waves often take the shape of an Elliott wave pattern called "triangle," a sideways move labeled ABCDE. Indeed, below you can see a developing triangle between the converging trend lines, labeled ABCD (circled), with wave E underway.
EUR/USD" title="EUR/USD" width="471" height="460">
Once wave E finishes, so will the larger-degree wave iv. And what comes after wave 4 of an Elliott wave impulse? Why, wave 5 of course!

Which means that the EUR is likely staring at a new low for the year.

Now, the new low has to wait until after wave iv is finished. Also, keep in mind that Elliott wave patterns are fluid, "living" things, so this wave iv could extend -- perhaps taking the form of yet another Elliott wave pattern called a "flat" correction. But that would only delay the resumption of the bear trend. In other words, the EUR may run, but it cannot hide.

by Jim Martens