Fundamental factors:

  • ECB running out of Monetary Policy Options
  • Brexit
  • Immigrants Crisis

Today’s markets have become over- reliant on Central Bank’s actions while asset prices remain elevated and growth slowdown concerns persist. Volatility is expected to increase during ECB’s and FED’s decisions on QE, however EUR/USD wave count suggests a bearish future and such scenario will accompany us for the coming weeks and months despite ECB decisions, or any other fundamental data.

In 2009 EUR/USD started an impulse wave down culminating in 1.2328. Corrective wave (2) retraced exactly 76.4% of wave (1) and in the same time wave (2) was comprised of an A-B-C move where wave A and C were equal. Keeping this in mind, EUR/USD is on its 3rd wave down.

Given that wave (3) is an impulsive one, we should be able to count 5 waves of a lesser degree within wave (3) in order to consider it completed. Up to now, as illustrated in the chart below we can easily count 1-2-3 of Major Wave (3), however wave 4 of (3) is still undergoing. As long as EUR/USD does not break above August 2015 high 1.1711 on this corrective wave, we should expect a 5th impulse wave down which could bottom on Fibonacci’s Extension 0.8980, challenging 2000-2001 lows of EUR/USD.

EURUSD Daily Chart

Let us now consider in depth the corrective wave 4 of major wave (3) using daily rather than weekly chart. According to R. N. Elliott’s guidelines, since corrective wave 2 was sharp, we should expect a sideways version of wave 4, which in this case is a triangle (3-3-3-3-3).

EURUSD Weekly Chart

We can consider wave 4 of major (3) completed only when 5 waves of A-B-C have ended and an impulsive wave has started through breaching the lower boundary of the triangle. EUR/USD has bottomed for the moment in the important support zone of 1.08, and we expect a higher move up to 61.8% Retracement from March 02 low, before the lower trendline of the triangle ($1.0610) is tested around May (Based on Fibonacci Time Zones). After completion of wave D, there is room for one more upside wave E to test the upper trendline of the triangle before breaking below in order for EUR/USD to mark fresh lows.

4th waves can be really frustrating to trade against especially when they come in the form of triangles (3-3-3-3-3), however given the wide timeframe of this triangle (Daily Chart), it should provide us enough levels to trade against.

Anything can happen in the markets, however as long as EUR/USD respects the upper trendline, and as long as the high of wave A is not taken out, we are pretty confident that EUR/USD will hit new lows.

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