The FX Traders EDGE Weekly Editorial Report
The EUR/USD has been above the 1.3700 resistance level showing a strong and healthy bullish trend for most novice traders’ eyes. Is that move sustainable? Well, thanks to Elliott Wave theory we can navigate inside the market’s chaotic movements to investigate how safe it is to be living inside this thousand – floor “pip” building. The Elliott Wave analysts are similar to Structural Engineers. We evaluate internal structures that the price action creates looking for the safest environment in which to trade, and our measuring stick is the time frame.
On the daily chart the price action shows a clear move up that we are labeling as the “(b)” magenta which is active and has taken 143 days. When the market is in corrective mode the best skills of the trader are being tested. The inside structure of the “(b)” wave magenta has taken the shape of a 3-wave structure “(WXY)”. I’m sure you are thinking “this looks too complicated,” but don´t worry, I promise it’s easier than it looks. Currently, the wave “(Y)” black is active and is in charge to complete the “(b)” magenta. The markets are fractal, and that means there are waves inside waves and so on, and you will be able to find waves from the weekly chart to the tick chart and see how all the waves are related among the timeframes.
Let’s continue talking about wave “(Y)” black, which has an internal structure too. In this case it is going to be another “WXY” red in circle. (Remember waves are inside waves, and the active wave is the wave “(Y)” red in circle!) I know you are probably not an Elliott Wave Expert but it is important to understand the structure of the market and find the best spot in the cycle to jump into the market.
Finding targets is one of the main objectives of this analysis, so I would like to invite you to use your Fibonacci lenses as Jody says, and together let’s find targets for the move up, using the Fibonacci relationship between waves “(W)” and “(Y)”. With the black labels we found the first target that price has already met – 127.2%(1.3612); the next target is 138.2%(1.3686) which was also hit; and, the final target is the 161.8%(1.3845) which is still pending. Now let’s make the same exercise with the waves “(w)” and “(y)” red in circle. The first target was 78.6%(1.3612); the next one, 88.7%(1.3677); and, the final target was 100%(1.3750). As you can see, most of the Fibonacci targets coming from one structure are the same as the ones coming from the internal structure, and that is called target convergence.
The EUR/USD is highly likely to continue moving higher with several precautions: the trend is losing momentum which means it is getting tired, soon the market will start correcting or reversing trend, and finally, we need more evidence to forecast that part of the next cycle. For now the best you can do is to continue riding the bullish trend to the 1.3845 and be ready once the structure fails to start looking for a reversal. Elliott Wave theory is the most precise technique I have ever seen to analyze the financial markets and I highly recommend it – even more if you learn it from our team. Have an excellent trading week!