From the April 01, 2010 issue of Futures Magazine • Subscribe!

Tech talk: Waving the euro flag

In Elliott Wave analysis, movements in the direction of the underlying trend occur in five waves (waves 1,3 and 5 in the direction of the larger trend, waves 2 and 4 countertrend) and corrective movements occur in three waves (labeled A,B,C except in the case of triangles). Also, trends are defined with respect to degree (similar to time frame). A completed Elliott Wave pattern at a lesser degree of a trend constitutes a portion of the pattern at the next larger degree of a trend (for example, five waves at a lesser degree compose one wave at the next degree).

The EUR/USD decline from its November 2009 high is in three waves. While the decline could constitute a completed correction, it is more likely that the three waves compose waves 1 through 3 of a 5-wave decline. Why? Because the 2008 decline was in five waves and the subsequent advance into the November 2009 high was in three waves. Remember, five-wave movements indicate the direction of the larger trend. At the current juncture (March 4, 2010), expectations are for the EUR/USD to rally in a 4th wave; 4th waves tend to retrace about 38.2% of wave 3, which in this case is 1.3874 (see “Waiting for the last shoe”); 1.3874 intersects with channel resistance (which is used to estimate the end of wave 4) on March 17. Once complete, wave 5 would commence and bring the EUR/USD below 1.3433. Channel support can be used to estimate the end of wave 5 as well. The line intersects with the end of April at 1.2750. With five waves potentially complete, the probability of a multi week low forming is increased at that point. In the event of an extended 5th wave decline, channel support intersects with the end of May at 1.2400.

In summary, an advance likely extends into late March and the 1.3875-1.3900 area should serve as resistance. Once that level is reached, look for the EUR/USD to resume its decline towards the mid 1.2000s.

Jamie Saettele is an active trader, senior technical strategist at Forex Capital Markets LLC in New York and author of “Sentiment in the Forex Market” (Wiley Trading). His technical strategy focuses on sentiment indicators and Elliott Wave and is published daily at

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome