In a December 10th special report, we argued that “the EURUSD correction from 1.4966 is not over. In fact, it has probably just passed its midpoint in terms of time.” We wrote that the corrective pattern should resolve itself by December 18th; when “the time of wave iv is equivalent to the time of wave ii.” It is now December 19th. So, is the correction over?
As we have written for some time now in the daily technicals and the Elliott wave forum, the current decline is most likely just a 4th wave correction within the 5 wave bull cycle that began at 1.3261. The pair has reached potential Fibonacci support at 1.4353 (38.2% of 1.3360-1.4967), so a bottom and reversal at the current juncture is possible. Possible but is it probable? The line at the top of wave i (1.3816) is risk for those willing to get bullish.
This chart zooms in on the bull cycle from 1.3261. Price is nearing the 100% extension of 1.4967-1.4526/1.4750 at 1.4309. This is where wave c of 4 = wave a of 4; this is a common relationship. However, wave v of 3 was extended and extended fifth waves are often fully retraced. In this case, a full retracement of wave v would mean a return to the 1.4015 area, which is just below the 161.8% extension of 1.4967-1.4526/1.4750 at 1.4036. This level is defended by the 61.8% of 1.3360-1.4967 at 1.3974.
The chart above is of the EURUSD weekly chart and indicators that are derived from COT data. The top red line measures the commercial hedger bullishness. The second red line measures speculator bullishness. The blue line is a combination of speculative and commercial hedger positioning. Strong buy signals occur when the top red line is near 100, the second red line near 0, and the blue line near 0. This indicates that commercial demand is strong and that speculative demand is weak. At market turns, speculators are always wrong and commercial hedgers always correct. Notice that EURUSD market lows occur when the top red line peaks, the second red line bottoms and the blue line bottoms.
[U]Summary[/U]
The EURUSD either bottoms now or near 1.4015. The important thing to understand is that the wave structure and COT data indicate that a bottom is forming and that the next big move (big is relative but in this case big is at least 500 pips) is up, not down. Risk for bulls is the July high at 1.3852. As always, we will keep an eye on the short term pattern and publish our comments everyday at daily technicals and FXCMTR.
