EURUSD Begins Multi-Week Rally

Talking Points

-Elliott Wave Theory can provide clues to our location within the EURUSD trend

-EURUSD finished a proposed ending wave of an ending wave of an ending wave suggesting a multi-week low on December 8, 2014

-Initial target zone is as high as 1.2900

EUR/USD Daily Chart

(Created using FXCM’s Marketscope 2.0 charts)

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Fibonacci Wave Ratio Analysis

• 5 clear waves higher from the December 8 low suggests the shorter term trend has moved higher
• One scenario suggests an immediate thrust higher under a small wave 3 to 1.2765 (see video and scenario #1 below)
• A second scenario suggests a drop towards 1.2340-1.2370 with the movement since December 11 creating an expanded flat formation (see video and scenario #2 below)

Bottom line, look for opportunities to buy EUR/USD on a breakout higher above this morning’s high or on a dip near 1.2340-1.2370. A move below 1.2450 will begin to suggest a deeper dip is likely towards the 1.2340 area. The December 8 low is the risk level on a deeper dip.

If wave 3 unfolds, either immediately or next week, upside targets towards 1.2765 would be the initial step in a multi-week rally.

From a longer term perspective, wave 4 of the previous trend, meaning the green wave 4 often times acts like a magnet in counter trend rallies. Green wave 4 is near 1.2900 so there are a few pips available should the wave labeling be correct and a rally develop.

Suggested Reading: How to Spot and Trade a Reversal in Forex

Looking for strategies to trade EURUSD on breakouts higher? Need a strategy to capture the EURUSD shifting sentiment which typically comes near market turns? Check out the DailyFX Plus Breakout2 and Momentum2 strategies in Mirror trader.

Good luck!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

Interested in shorter term trading ideas? Check out DailyFX’s premium services. (Subscription credits are available to active and higher equity clients of FXCM.)

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This article uses Fibonacci ratios to follow a pattern. To learn more about Fibonacci retracement ratios, register and take this free 20 minute on demand course. Register here.