EUR/USD Could Be Biding Time Before a Break Lower says Elliot Wave Analyst

Exchange rates

Image © Andrey Popov, Adobe Stock

- EUR/USD poised to break lower

- Elliot Waves suggest final wave (v) down close to unfolding

- This likely to take pair to new lows below 1.1500

The Euro is enjoying a +0.5% advance on the Dollar with the pair rising to 1.1719 ahead of the weekend thanks to a renewed attack on the value of the Dollar by US President Donald Trump who bemoans the US Federal Reserve's policy of raising interest rates.

Trump has on Friday, July 20 also embarked on an extraordinary attack on the European Union, accusing them of artificially lower the value of the Euro.

There are suggestions from some quarters in the analyst community that Trumps barrage could place a temporary cap in the Dollar's rally, and thus mark a decisive turning point for EUR/USD.

But, EUR/USD is forming a sideways market consolidation before it breaks lower, according to Alex Geuta, an Elliot wave analyst, at broker Liteforex.

Geuta characterises the pair as traded in a complex wave (iv) correction of the primary downtrend.

Wave (iv)'s are always followed by wave (v)'s down. This suggests the probability the pair will plumb new depths after to a potential target at 1.1439.

The forecast is conditional on the pair remaining beneath the 1.1790 level.

EUR to USD daily

The move lower, however, is part of the first wave, wave A, of a larger corrective wave (2) down, suggesting upside will eventually prevail once the wave (2) is complete, although this may be some time away.

The structure of wave (iv) can be seen more clearly on the chart below, which is the 4hr bar time frame. It shows how the pair appears to be forming a consolidation known as a triangle.

Triangle's are usually composed of a minimum of 5 waves labelled a-e, and this triangle is in the midst of completing what is probably its final wave-e.

EUR USD 4 hr chart

Even more detail is afforded by zooming in to the hourly bar chart, below:


"On the 1-hour time frame, apparently, the final wave (е) of iv is forming, and, if the presumption is correct, after it is complete, the EUR/USD price will continue declining towards the level of 1.1439," says Geuta.

Elliot waves are cycles of buying and selling, of rising and falling prices, which are composed of 5 waves numbered 1-5, or labeled using Roman numerals, as in I, II, III, IV, and V.  

Waves 1,3 and 5 move in the direction of the dominant trend whilst 2 and 4 represent corrections. Wave 3 is almost always the longest and the strongest wave.
Pic - EUR-JPY-July12-bear.png

After a 5-wave pattern has finished the market corrects back in a shallower counter-trend move labeled A,B, and C.

Elliot waves are each composed of smaller 5-Elliot waves and are themselves components of larger 5-wave patterns, with waves within waves, ad infinitum.

Elliot wave analysts try to establish the point at which the current market is in the greater wave pattern, which enables them to predict what will happen next.
Elliot waves are considered by many to be a reliable method for forecasting price moves when employed by competent analysts and traders.

In 1984 the Elliot wave expert and author of "The Wave Principle", one of the leading texts on Elliot Wave analysis, Robert Prechter won the US trading championship in options with a stunning 444% gain. The next closest competitor showed an 84% gain.

Nevertheless, Prechter hasn't always been right: he famously called for a continuation of the great bear market after stocks bottomed in 2009, when instead stocks rallied to new highs.

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