Wednesday, January 19, 2011

EURUSD Correction or New Bull Market?

Euro Dollars
EURUSD Rally: A Correction or a New Euro Bull Market?


Over the past eleven days, the euro has gained about 600 pips, or 6 cents, against its main rival, the U.S. dollar, moving the EURUSD in the mid-$1.34 range.

Forex analysts have attributed the rally to a variety of factors, but mostly to hopes that the European sovereign debt crisis has been halted. The news makes it sound like there simply hasn't been a good reason to sell euros lately -- but from an Elliott wave perspective, the reasons for the EURUSD rally have been quite different.

Our January 11 Free Update article reported that at the time -- before the "bullish" news from Europe had emerged -- Elliott Wave International's Currency Specialty Service was already calling for a EURUSD to rise, based only on Elliott wave patterns. The advance was expected to be corrective -- that is, moving against the main trend. In Elliott wave terms, it was labeled wave 2 -- of waves 1, 2, 3, 4 and 5, that is.

The question is, now that the EURUSD rally has moved this far, does it still qualify as wave two? To answer that, you need to step back and take a look at the larger picture. Currency Specialty Service presents an updated daily EURUSD chart every evening; here's one from January 18 (some Elliott wave labels were removed for this article):

Click the EURUSD chart below for a larger view.


As you can see, on a larger scale there is still a perfectly legitimate way to label the advance as a continued wave 2; "recent setback maintains its corrective shape," says Currency Specialty Service.

Forex markets bring new information 24 hours a day, and few analytical methods allow you to keep up with this ever-changing marketplace as dynamically as Elliott waves. To see how far this EURUSD rally may have left to go, you can study shorter-term wave labels on the intraday pages online right now.