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EUR/USD: From "Mess" To Clarity

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August 16, 2012 - EUR/USD: From "Mess" to Clarity by Elliott Wave International

On August 16, EUR/USD gained more than 100 pips, hitting a pause at 1.2370. As a forex trader, how do you know if this rally is a fake or not? In other words, where will EUR/USD likely go tomorrow?

"Fundamentals" only tell you why something has already happened, so let's turn to Elliott wave analysis for answers instead.

Here is a 180-minute EUR/USD chart our forex-focused Currency Specialty Service is showing to subscribers right now (with some Elliott wave labels erased):

EURUSD Elliott Wave Chart

As you look at this chart, one thing is immediately obvious: Off the July 25 low of 1.2042, the rise in EUR/USD has been a "mess." It's a rally followed by a deep retracement followed by another rally -- and another deep retracement. What does that tell you? If you know even the basics of Elliott, overlapping moves are corrective. Indeed, that's the Service editor, Jim Martens, labels it.

Now, let's zoom in closer. Here is a 30-minute EUR/USD chart from our Currency Specialty Service. All of the Elliott wave labels have been erased for this article -- but even then, one thing is clear: Off the August 14 high, EUR/USD fell in 5 non-overlapping waves:

EURUSD Elliott Wave Chart

What conclusions could you draw from both charts? Elliott wave corrections do not define the trend -- Elliott wave impulses do. Looking at the "mess" of the first chart and the clarity of the second implies one thing: Don't believe everything you read in the press about "the ECB supporting the euro at any cost."

Waves tell you where the market's collective psychology is pointing, and central banks are no match to the power of the market's collective psychology.

There is a nearby, risk-defining price level that EUR/USD must respect in order for the preferred Elliott wave forecast to remain in force. Currency Specialty Service tells you what that price level is.

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