EUR/USD has reached multi-year trend lines at 1.25, which also is significant according to Elliott Wave Theory. Our Elliott Wave analysis suggests a large trend lower begins from nearby levels.
The Elliott Wave pattern on EURUSD is ripe for a turn lower. We described previously how three ending waves meet a 10-year trend line through a cluster of price zones near 1.25-1.26. This price zone on EURUSD plus a mature Elliott Wave pattern hints a bearish turn is upon us.
In these scenarios, I like to implement breakout trades. In this case, a break down below the March 1 low of 1.2154 is significant for a couple of reasons.
Weekly EURUSD Elliott Wave Count
First, as mentioned above, we can count the minimum number of waves needed to complete the bullish three year Elliott Wave expanded flat pattern.
Secondly, a break to 1.2154 means EURUSD would have to break the upward sloping red support line that has contained prices for the past 15 months. This line was created by connecting the ends of waves 2 and 4 to form the upward sloping Elliott Wave channel. Therefore, a break below this support trend line confirms further the mood of the EURUSD market is changing and that the three-year flat pattern has likely ended.
Notice how RSI is diverging into the new price highs. That is common on fifth waves of Elliott Wave impulse waves.
EURUSD Trade Set Up
Entry: Short on a break at 1.2153
Stop Loss: above a recent swing high near 1.2360. Manually trail stop loss in future updates.
First Target: 1.1554 (Risk to reward ratio is 1 to 3)
Second Target: 1.09 to 1.12 (risk to reward ratio is 1 to 5)
Third Target: Open as EUR/USD could eventually drop to retest 1.04 lows
Elliott Wave Theory FAQ
“I hear that a lot of traders struggle with profitability, why?”
Regardless of the style of analysis, many traders do lose money because they do not take the time to study the market and the effect of leverage. At DailyFX, we have studied millions of live trades and boiled our study down into a Traits of Successful Traders guide. You will find how leverage and human nature affects our trading so you can implement tactics like ones described in the trading idea above.
The trade scenario mentioned above does adhere to the Traits of Successful traders we researched in the guide.
Where can I learn more about Elliott Wave Theory and how to trade with it?
Elliott Wave Theory is a study of waveforms, patterns, and wave structure. The rules and guidelines are simple and can be found in these beginner and advanced Elliott Wave guides. The challenge with Elliott Wave principle is identifying and interpreting the waveforms in real time. As a result, I would suggest you follow the writing and webinars DailyFX has devoted to Elliott Wave Theory.
New to FX trading? We created this guide just for you.
---Written by Jeremy Wagner, CEWA-M
Jeremy Wagner is a Certified Elliott Wave Analyst with a Master’s designation. Jeremy provides Elliott Wave analysis on key markets as well as Elliott Wave educational resources. Read more of Jeremy’s Elliott Wave reports via his bio page.
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