Euro Bulls Could Not Defy Gravity Forever
EWM Interactive | Feb 23, 2017 08:05AM ET
The euro climbed to 1.0828 against the U.S. dollar on February 2nd, which was the culmination of a recovery that began from as low as 1.0340. Nearly 500 pips to the north, which is usually more than enough to convince even the most stubborn of bears that it is time to give up and join to opposite party. However, it turned out EUR/USD bulls were running on fumes. Instead of continuing even higher, the pair reversed to the downside. Exactly 20 days later – on February 22nd – the euro fell below 1.0500 again.
‘Follow the trend’ sounds nice and simple, but unfortunately, traders usually find themselves joining a trend just when it is about to end. Luckily, there is a solution. The Elliott Wave Principle is famous for its ability to help traders prepare for upcoming reversals. It was this method we relied on, when we sent our premium clients their analysis before the markets opened on February 6th. The 4-hour chart shown below was included.(some marks have been removed for this article)
As visible, our Elliott Wave interpretation of the situation led us to the conclusion that the rally from 1.0340 was a three-wave (a)-(b)-(c) zig-zag correction with an Fibonacci level was also applying negative pressure, while the relative strength index was flashing a bearish divergence between waves (a) and (c). According to the analysis, a reversal was supposed to happen prior to 1.0925.
The euro did not even manage to make the last swing high that we thought it would. It started declining right away, leaving the invalidation level at 1.0925 out of danger. The pair is currently trading near 1.0550, giving us another reason to trust the Wave Principle again next time.
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