EUR/USD Elliott Wave Count – Imminent Downswing

EUR/USD Elliott Wave Count

The EUR/USD has been very strong in Q3 and part of Q4 2010. US QE2 has been pressuring the USD and European data has been benign. I would
say the market was not that focused on Europe’s problems as much as
the problems in the US. While there may be some further weakness in the
greenback, the Euro may also be stepping into a period of weakness, and
if the US Dollar Index bounces from the 75.00 level, we may have a
major decline in the EUR/USD. The wave count for the pair suggests we
may be at a terminal wave within a large wedge pattern. Let’s take a
look.

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eurusdelliottwave_110510

  • The Weekly chart shows the EUR/USD in a large wedge pattern. As it nears 1.4450 (78.6% retracement), it is likely to see resistance. It
    may also be the end of wave D.
  • The alternate count is that an impulse wave has started, and will continue, breaking above the wedge.
  • While that is a possibility, I would respect the resistance of the wedge pattern first.
  • In this alternate count the A was 1, B was 2 and C was 3, so wave 4, should not overlap 1, making 1.3350 an important pivot.
  • A break of 1.3350 on the downside would invalidate the bullish count.
  • The general time-frame for this scenario is the rest of 2010 Q4 and 2011 Q1 and possibly Q2, if the time for the wave development is
    similar to the previous run up.

eurusdelliottwave_110510daya

  • The Daily chart is showing a bearish divergence with the RSI. This suggests we may be near the end of wave C, (D).
  • There is a chance the market has turned bullish, since the RSI did break above 70, and there is an alternate bullish impulse wave.
  • The alternate count is based on the market not breaking down below 1.3350, and the market breaking above the wedge pattern, breaking above
    1.45. The ability of the market to remain bullish during bearish
    divergence signals may help confirm bullish impulse count.
  • For now, I would respect the wedge pattern.
  • The question is whether wave C, (D) is over.
  • If the market has completed the internal wave (v), then we should be seeing an imminent downswing.
  • We should see if this downswing is (E) by Q1 2011, by testing 1.3350.

eurusdelliottwave_110510h

  • The 4H and 1H chart hopefully will show us the internals to see if the market has indeed topped off.
  • The 4H chart shows the market was just in a diamond pattern, which was NOT the top. This is possibly a transition between wave (iv) and
    (v) to end C, (D). There are many different counts that are possible,
    some of which have not been triggered into consideration yet.
  • For now, the nearest possible count is that we have completed a wave 5. and is ready for at least an intermediate term downswing towards 1.3350. If wave 5 is not complete, there could possibly be another minor upswing to do so.
  • Look at the 1H chart. To start considering the downswing, we need to see a break below 61.8% retracement near 1.3950.
  • Otherwise, from here, we can still have another wave to be wave 5.
  • The RSI in the 1H chart is breaking below 30 which is a good sign for a bearish outlook. However, it needs to confirm but failing to
    break back above 60, and pushing down below 40, then 30 again. That
    would help your bias towards an imminent downswing.
  • Looking back at the 4H chart, we see that the 1.3350 level is where we would be able to violate the alternate bullish wave count, so if the
    imminent downswing does materialize, be ready for support there.
  • In conclusion, the 1.3950 level is a very important near-term pivot to start next week. A break below that suggests we should start considering an imminent downswing and looking for more clues.
  • The bearish scenario has to consider an alternate count, so the 1.3350 is another level to monitor.

Fan Yang CMT
Chief Technical Strategist

FXTimes

fyang@fxtimes.com

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice.While the information contained herein was obtained from sources
believed to be reliable, author does not guarantee its accuracy or
completeness. FXTimes will not accept liability for any loss of profit
or damage which may arise directly, indirectly or consequently from use
of or reliance on the trading set-ups or any accompanying chart
analyses.

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