The Elliott Wave analysis for EUR/USD has simplified and it is possible a medium term top has formed. The other pattern we are considering is an Elliott Wave ending diagonal underway.
The video above is a recording of a US Opening Bell webinar from February 19, 2018 (even though US equity markets are closed today, we continued with the webinar due to some forex Elliott Wave patterns developing).
Elliott Wave Analysis for EUR/USD
We previously wrote how three ending waves are meeting a ten-year trend line on EURUSD. This is indicating a very mature up trend that is at risk of reversal.
There are four wave relationships we noted on February 8 appearing in a price zone of 1.2588 to 1.2648. EURUSD came very close to the bottom edge of this potential pivot zone topping out at 1.2556. The subsequent sell off to 1.2370 is deep enough to eliminate some Elliott Wave count possibilities.
Both Elliott Wave models presented below are higher probability in nature. We cannot favor one or the other until 1.2556 or 1.2206 is broken.
Case for EURUSD Medium Term Top and Reversal
According to Elliott Wave Theory, each major wave is constructed of a specified number of minor sub waves. We can count the number of minor sub waves in place to count the upward correction that began in March 2015 as complete. Under this interpretation, the February 16 high of 1.2556 must hold and eventually 1.2206 would need to break.
Once the medium term top is in place, we are anticipating a reversal down towards 1.15 and possibly lower.
Case for Elliott Wave Ending Diagonal Pattern
Since the February 16 high fell short of the potential pivot zone, we need to consider what other patterns may exist that would drive EURUSD higher and deeper into the pivot zone.
One pattern we are following is an ending diagonal pattern. Ending diagonals are five wave patterns consisted of zigzags. It is possible the first of the five waves were completed on February 16. The second of five waves are underway now that would need to hold above 1.2206 to keep the pattern valid. At that point, support would drive EURUSD higher above 1.2556 in the third of five waves.
A break above 1.2556 elevates this scenario so long as 1.2206 holds.
EURUSD Sentiment Analysis
EURUSD continues to illustrate bullish signals through its sentiment reading, though the strength of this signal is waning. We are seeing the number of net short traders giving up and reducing in number while the number of net long traders test its highest level since early December. The current live sentiment reading for EURUSD is -1.7. Sentiment is used best as a contrarian tool, which is a bullish signal for EURUSD now.
Look for sentiment to shift towards bulls to help confirm a looming top. This bullish shift could be structured with bears giving up or the number of traders net-long increasing (or a combination of both).
AUD/USD Elliott Wave Forecast is Longer Term Bearish
It appears AUD/USD carved a meaningful high at the end of January 2018. We can count the upward wave that began 3 years as being complete. The current sell off has been deep enough to provide warning signals the up trend is over.
Last week AUD/USD did bounce back into the potential reversal zone. Therefore, any weakness in AUDUSD is seen as a resumption of the bear trend. A break below .7891 will be a trigger with risk placed near .7989 or .8117 depending upon your risk appetite. Our first target is 76 cents with even deeper bearish targets towards 69 cents.
AUDUSD sentiment is getting close to flipping net bullish. This would be the first flip in sentiment since early December 2017. According to our sentiment trading guide, we would use this as a contrarian signal with a bullish flip signaling a bearish trend.
Elliott Wave Frequently Asked Questions
How does Elliott Wave know the cycle is about to end?
Elliott Wave Theory is a study of wave patterns and their structure. Since we can nearly count a five-wave impulse as complete, that is warning us that a large rally is looming nearby. Therefore, we scale down to a smaller time frame and see that within the fifth wave, it is nearly complete in carving five waves. Since the market is fractal, we can keep zooming in and seeing these wave forms develop on smaller time scales. Continue your Elliott Wave education by reading our beginners and advanced Elliott Wave guides that will cover some of the basic patterns and how to trade with Elliott Wave Theory.
What markets is Elliott Wave Theory best applied to?
Elliott Wave Theory is best applied to the liquid markets. Therefore, you will see me apply my analysis to major and common FX pairs, stock indices, common commodities like gold, silver, copper, and energy like oil or natural gas.
If you are not sure if Elliott Wave is for you, consider reading these materials that will help you get started in trading FX with some commentary on the habits that make successful traders.
---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.
EURUSD and Gold were two markets covered in the December 27 webinar “What to Watch For in 2018”. Watch a recording by registering here.
Discuss these markets with Jeremy in Monday’s US Opening Bell webinar.
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