EUR/USD Breaks Trend Line, Hastens Upward
Alpari | Aug 24, 2015 04:54AM ET
The EUR/USD has broken the trend line and, due to a collapse in stock markets, has hastened upwards. I’ve marked out three price levels on a large W-shaped pattern: 1.1533 (03.02.15 maximum), 1.1750 (along the upper limit of the channel) and 1.2227 (50% of the fall from 1.3993 to 1.0461). A return of the rate to 1.1150 and below will cancel out the scenario.
The euro has received unexpected support from a stock market plunge and a cooling of expectations regarding the Fed’s interest rate decision for September. Last week, the EUR/USD grew by 271 points (+2.43%) to 1.1386.
When the dollar strengthens, investors take credit in euros at a low rate and spread their funds outside of Europe. Now they are closing short positions in euros and returning back their capital (carry trading).
First there was a false break in the trend. From 1.1213 the price returned to 1.1016. After the FOMC published its minutes, the eurobulls won back all their losses and brought the rate up to 1.1384. It’s now unlikely that the buyers will force the rate back to the 1.1436-1.1466 zone, or more precise, to 1.1533 (3rd February, 2015 maximum).
A W pattern is forming. The buyers’ success will depend on stock market fluctuations and American data. The worse the stats, the higher the euro will head against the dollar. Note the beginnings of a correction on the EUR/GBP. How long the correction phase on the cross will take place for is hard to say. It will become clear after the closing of the monthly candle.
If we split the complex model into parts, we can see two W shaped patterns which form a single large W. On the monthly timeframe, the correction will look like a regular A-B-C triangle. As part of this correction one can work for the meanwhile with a rise over the course of two weeks. 6th September will see a completion of the growth phase and 4th September will see the payrolls out. If the NFP data is weak, the dollar’s fall could resume with a new and more powerful lease of life. As such, 6th September is a key day.
I’ve marked out three price levels on a large W-shaped pattern: 1.1533 (03.02.15 maximum), 1.1750 (along the upper limit of the channel) and 1.2227 (50% of the fall from 1.3993 to 1.0461).
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