EURUSD – the most popular forex instrument
Why is it important to analyze EURUSD every week? Euro and Us dollar are the currencies of two most biggest economies in the world. Therefore, quite naturally, it becomes a necessity to dissect the EURUSD movements in order to achieve success in forex trading.
As they say, a picture is worth a thousand words…
The red dotted arrow is from last weeks forecast. Last week’s expectation is being materialized up to the pip. However, the truth is that such momentum to the wave up was not expected. So we have a new member in the chart to cover another possibility – bearish Bat pattern.
Harmonics and Elliott
Harmonic patterns and analysis on our charts deserve an explanation. The sole reason for harmonics to be included in our analysis is their relationship to fib ratios. In our tests (for months worth of data,) harmonics alone do not perform well. More on these tests later. In fact, we are running tests on different pairs at this very moment. But combining harmonics with Elliott waves is a successful combination. In short, I consider harmonics only in conjunction with Elliott waves.
Characteristics of the last bullish wave
In order to determine the current market position in terms of the wave analysis, we have to look at the recent history for possible clues. The first question is that if the last wave was impulsive, corrective or not-enough-clues.
Although in the previous image of the H4 timeframe it seems the momentum of the preceding wave down and the current wave up is somewhat identical. But looking at this hourly view, its clear that the current wave up is more impulsive. So how does that affect our analysis? Well, the impulsive nature of the current wave could change the whole corrective structure. It also reduces the probability of the sideways continuation or perhaps a triangle otherwise.
But the significant influence of the five-wave impulse is that the structure now completes a possible ABC Flat as well.
This seems to be the most sensible count that is in agreement with both – higher and lower degrees.
Play your cards right
The price however, is at the structural top (refer to the red lines in the first image.) And the current bullish wave seem to have completed a 12345 motive wave in a lower degree. The possibilities are:
- The current wave is first wave of Y (not necesarily but most likely to be a ZigZag)
- Current wave is the wave C of a triangle pattern
- The overall corrective structure is complete at the current market position, with an ABC Flat
Its very likely that the market will be bearish at the start of the week, through Monday to Tuesday, perhaps even on Wednesday. Whether the bearish move impulsive or corrective, it will depend on the overall corrective structure in the making or perhaps complete. There is not enough information in order to expect the Bat completion, nor to expect sideways continuation. So the Flat completion is the prime option to consider for now.
Its NFP week…
Remember its the Non-fram payroll week as well. So be cautious as this could be one of the most volatile NFP news events this year. The markets saw volatility through the roof last week, with USD interest rate (there was no change in rates though) on Wednesday and the BOJ press conference on Friday. So there is pressure building up in major currencies. It has to break one way or the other.
As per the wave analysis, JPY pairs are in a prolonged correction. So is Euro-dollar:
Yes, the huge bearish move is coming (if the triangle forecast is correct.) But before that we need confirmation that the correction is over. However, the recent developments of last couple of weeks along with the possible ABC Flat completion, could mean that we have to consider the wave 2 as complete.
So the bearish move may be coming sooner than we thought. What other news events can move the markets better than the NFP, right? So there is enough evidence that wave 3 of the C wave could get a head start on next Friday. But the cat will be out of the bag during first half of the week.
The best play would be to take a short position and clear some profits before before NFP. Because NFP could whiplash a great deal through structure highs, if the market truly needs to start the wave 3 by next week, as we expect.
This is assuming the wave 2 is complete with a Flat. If the correction is not complete yet and next week proves to be more bullish, the we can safely assume the Bat completion. But as of now, it seems very likely that Euro-US dollar will be bearish for the next week, perhaps for few more weeks to come.