The Elliott wave story of the 240-pip sell-off in EUR/USD since Wednesday is remarkably similar to that of the S&P 500.
Just like U.S. stocks, euro/dollar (the world's biggest forex market) had an easy-breezy start this week -- namely, it went higher.
The rally was fully in the cards based on an Elliott wave pattern called a contracting triangle. On Monday, the editor of our forex-focused Currency Specialty Service, Jim Martens, wrote:
[Posted On:] June 17, 2013 09:18 AM
The triangle suggests the euro will thrust to a new high above 1.3391 but warns the new high will represent the end of a larger rally sequence.
Notice that warning about the rally being brief. Triangles most often appear in the fourth-wave position of the five-wave Elliott pattern. The so-called post-triangle thrust -- in this case, higher -- is usually an ending move.
That was on Monday. On Tuesday, EUR/USD indeed went higher. Currency Specialty Service wrote:
[Posted On:] June 18, 2013 05:59 PM
Remain on guard for a potential peak in EUR/USD following a five-wave advance of multiple degrees, the most recent of which was an ending diagonal. These patterns tend to retrace themselves quickly...
See, just like in the S&P 500, the tail end of the EUR/USD rally was taking the shape of a diagonal -- an ending pattern that virtually guarantees a sharp trend reversal.
That takes us to Wednesday, the now infamous day of the Fed's announcement. Wrote Jim in a morning intraday update:
[Posted On:] June 19, 2013 11:33 AM
No change here. A new high would best complete an ending diagonal, setting the stage for a downturn.
Another high didn't come -- but the long-awaited downturn came in spades:
On the morning of June 19, Jim Martens tweeted:
"All eyes are on the Fed and the announcement due today. If USD gets stronger, investors will certainly say the Fed was the cause. What we will point out is, the market was already poised to turn."
Indeed it was.
We track 11 FX pairs in our Currency Specialty Service, 24 hours a day, in real time.
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