EUR/USD CORRECTION CONFIRMS LARGER UPTREND INTACT

by WaveTrack International| May 31, 2017 | No Comments

GOLDEN-SECTION PHI IN EUR/USD CORRECTION!

There was a noticeable increase in short-covering of G4 currencies against the US$ dollar towards the end of last week (basis the latest IMM positioning reports). The aggregate USD dollar long positioning declined to a new multi-month low at $7.5bn. Meanwhile, the Euro remained the most net-long currency at €9.1bn, a new multi-year high.

When figures like this occur for the Euro, a check on the underlying Elliott Wave pattern progression is useful in determining direction and whether a contrarian bearish stance is appropriate.

The EUR/USD has driven higher since January’s low traded at 1.0341 into last week’s high at 1.1268. No wonder traders have covered shorts in the Euro and are now net long – that’s a huge move.

But is the 1.1268 high the end of this advance, or just part of a new uptrend?

EUR/USD – 30 mins.

One thing for sure, last week’s decline from 1.1268 has just completed unfolding into a corrective zig zag pattern to 1.1109 – see fig #1. Labelled in minuette degree, [a]-[b]-[c] and subdividing 5-3-5, the zig zag can be ‘proofed’ using fib-price-ratios – for example:

Wave [a] x 61.8% -1.1170 = wave [c] @ 1.1108+/-

The actual low at 1.1109 was only 1 pip deviation! – the fib. 61.8% extension ratio marks the location of the ‘golden-section’ phi

Two observations can be derived from this zig zag. First, it confirms the EUR/USD remains within a larger uptrend despite the current long-positioning extreme revealed in the IMM reports. Second, as the Euro/US$ is somewhat overbought basis the IMM stats, this zig zag could easily neutralise this excess by continuing to decline into a deeper double zig zag pattern, breaking below 1.1109.

To extend the current zig zag into a double pattern, wave [x] resistance must be maintained below the 1.1268 high. And preferably below Tuesday’s high of 1.1205 which happens to be a test to the fib. 61.8% retracement level of the preceding zig zag.

The probability of extending lower, below 1.1109 outweighs a more immediate attempt to higher-highs – but conditional on remaining below nearby resistance.

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