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EUR/USD Wave Structure Points Towards 1.09-1.10

EUR/USD Wave Structure Points Towards 1.09-1.10

2015-06-23 17:53:00
Jeremy Wagner, CEWA-M, Head of Education
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Talking Points

-Today’s break below 1.1200 clears the wave picture

-Expanded flat downward correction likely continues towards 1.09-1.10

-Long opportunity near 1.09-1.10 with 1.0815 as risk level

With the EURUSD breaking below 1.1200 earlier today, it elevates the potential of an expanded flat downward correction according to Elliott Wave Theory.

EUR/USD Wave Structure Points Towards 1.09-1.10

For those unfamiliar with Elliott Wave Theory, it is a form of technical analysis that assesses the characteristics of the waves without regard to the corresponding news. When reading this article, remember that Elliott Wave is probabilistic in that anything is possible so long as it conforms to the Elliott Wave theory rules.

With that said, each pattern has an idealized look and guidelines exist as to its ‘typical’ shape. Those counts that fit many guidelines are considered higher probability in nature, but that doesn’t mean what is anticipated will occur. As with any risk in the market, know where you are wrong and get out of the trade when the market is carving something else.

Last week, we identified two wave patterns that were higher probability and called for shorter term moves higher. The challenge was, however, that so long as we held below 1.15 we needed to respect the potential for a drop to 1.09-1.10.

Well, now that prices have broken below 1.1200, this elevates the expanded flat pattern identified last week as the higher probability move.

Last Week’s Article: EUR/USD Wave Structure Points Towards Higher Levels

Expanded Flat

The higher probability scenario we are currently tracking is a smaller degree expanded flat correction that eventually works down towards 1.09-1.10.

Expanded flats are corrective moves meaning they move in the direction against the trend. In this case, since it is a downward expanded flat correction, we can anticipate that once this flat is exhausted, we’ll see a continuation of the EURUSD trend higher (see idealized pattern above).

Since the expanded flat is a corrective move, it will unfold in three bigger waves labeled on the chart below as (a)-(b)-(c). The sub-waves give a 3-3-5 appearance meaning wave (a) consists of three waves, wave (b) consists of three waves, and wave (c) consists of five waves.

Therefore, it appears we are in the middle of wave the (c) wave lower. Since the (c) wave typically acts as a false break on the (a) wave, prices could dig into the 1.09 handle.

(Click on the chart to zoom in; after zooming in, press the play button towards the right to set the market in motion since the chart was created)

EUR/USD Wave Structure Points Towards 1.09-1.10

Created using TradingView Charts

Expanded flats are challenging patterns that are designed to fool many traders. It is essentially a dual false breakout pattern. We experienced a false breakout higher above the June 4 high which means we’ll likely see a false break below the June 5 low.

Once this expanded flat is exhausted, there will be an opportunity to buy the EURUSD and target new highs above 1.15. Therefore, if a trader enters near 1.10 with a 1.08 stop loss and a target of 1.15, that provides a target 2.5 times the distance of the stop loss.

Other Possibilities

As mentioned above, Elliott Wave is probabilistic in that nothing is certain, simply likely. Therefore, another option which would transpire calls for a break below 1.0815. Therefore, this 1.0815 level is key to determining the direction of the medium term trend.

Other wave counts (press the PLAY button towards the right of the chart to see market movement since the analysis was made):

EURUSD Finishes Wave X (Daily Chart - June 2)

How Much Juice is Left in USDJPY Bulls? (Daily Chart – June 9)

EUR/AUD Suggests EUR Out Performance (4 Hr Chart – June 1)

Elevated Probability of a 200 Pip Sell Off (GBPUSD 3 Hr Chart – June 18)

Kiwi Support Shelf Break Could Be Significant (NZDUSD Daily Chart – May 29

Gold Bugs – You May Get Your Wish (Gold 8 Hr Chart – June 22)

EUR Appears to Shine More Than Sterling (EURGBP 2 Hr Chart – June 22 – didn’t work out)

Make sure to join me Monday mornings at 9:30a ET inside the DailyFX Plus Live Classroom for the US Opening Bell webinar [free registration]. In this webinar, we analyze the major FX pairs using Elliott Wave technical analysis. The next webinar is Monday July 6.

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

Want to follow the Elliott Wave analysis on the EURUSD beyond the news event? You have the ability to copy my charts above so they appear on your desktop exactly as shown above. Email me at jwagner@dailyfx.com if you wish to receive instructions on how to do so. Feel free to comment on the chart with your views.

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his DailyFX Forex Educators Bio Page.

This article uses Fibonacci ratios to follow a variety of patterns including Elliott Wave. To learn more about Fibonacci ratios, register to take this free 20 minute on demand course. Register here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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