The EUR/USD pair has shown remarkable strength in recent weeks, rallying from its lows of 1.0178 and potentially completing a 5-wave impulse structure, as per Elliott Wave theory. This article explores the evidence of this potential trend and the early signs of a possible corrective Wave 2, which may set the stage for a Wave 3 rally.
Wave Count Analysis: A 5-Wave Impulse from 1.0178
Elliott Wave theory posits that trends often unfold in a five-wave impulse structure during their primary movement. Here's a detailed breakdown of the EUR/USD move from the 1.0178 low:
Wave 1: The initial thrust upward from 1.0178 to approximately 1.0353 was characterized by strong buying momentum, accompanied by rising volume—classic signs of the first wave of a new trend.
Wave 2: A shallow pullback followed, retracing approximately 50% of Wave 1, stabilizing near the 1.0267 region, and respecting the Fibonacci retracement levels.
Wave 3: The next leg upward, extending to around 1.0436, showed the hallmark of an extended third wave. This leg was defined by increased market participation, fundamental data supporting the euro, and sustained upward price action.
Wave 4: A sideways consolidation pattern near 1.0438-1.0410 marked the fourth wave, presenting a corrective triangle pattern (a typical fourth wave pattern) that failed to break below key support levels.
Wave 5: The final impulsive move carried EUR/USD to a recent high near 1.0521, completing the potential five-wave structure.
The structure aligns well with Elliott Wave principles, as Wave 3 appears to have the strongest momentum (although it was not the longest), and the Wave 4 termination point did not overlap with the price territory of Wave 1.
Signs of a Trend Reversal: The Infancy of a Corrective Wave 2
After reaching the highs around 1.0521, EUR/USD has shown signs of exhaustion, with bearish divergence forming on momentum indicators such as the RSI and MACD. These are early clues that the bullish impulse may be giving way to a corrective phase.
Currently, EUR/USD appears to be in the early stages of a Wave 2 correction, and traders should watch for:
Fibonacci Retracement Levels: Wave 2 corrections often retrace 50%-61.8% of Wave 1. Key support levels to monitor are 1.0349 (50% retracement) and 1.0308 (61.8% retracement). A healthy corrective move respecting these levels would reinforce the case for a Wave 3 rally.
Although, Wave 2 concluding near 1.0250 (the 78.6% retracement) of Wave 1, a critical Fibonacci level often associated with deep corrections before trend resumption is also a common occurrence.
Volume Analysis: Corrections are typically marked by declining volume, reflecting reduced market participation compared to the impulsive waves.
Bullish Reversal Signals: Look for candlestick patterns, such as bullish engulfing candles or morning stars, near key Fibonacci levels as potential indications of a resumption of the uptrend.
If the corrective Wave 2 confirms with a rebound near the aforementioned Fibonacci levels,
EUR/USD could be gearing up for a powerful Wave 3 rally. Here’s what to watch:
Wave 3 Target: Wave 3 is often the strongest and most extended wave, frequently reaching 1.618 times the length of Wave 1. Using Fibonacci extensions, the target for Wave 3 could be around 1.0800.
Invalidation Level: If EUR/USD breaks below 1.0178 (the origin of Wave 1), the bullish impulse count would be invalidated, and an alternate corrective structure might be at play.
Conclusion
EUR/USD’s rally from 1.0178 to recent highs near 1.0522 exhibits the hallmarks of a 5-wave impulse structure. While early signs of a corrective Wave 2 are emerging, the upcoming price action near key Fibonacci retracement levels will be critical to confirm whether this is a mere pullback before a larger Wave 3 rally unfolds.
Traders should remain patient and vigilant, watching for bullish signals at support levels and preparing for the next potential impulsive move. If confirmed, the third wave could bring EUR/USD to fresh highs, further solidifying the reversal from its long-term downtrend.
Disclaimer: This article reflects an analysis based on Elliott Wave theory and is for educational purposes only. Always conduct your own research and use proper risk management when trading.
Wave Count Analysis: A 5-Wave Impulse from 1.0178
Elliott Wave theory posits that trends often unfold in a five-wave impulse structure during their primary movement. Here's a detailed breakdown of the EUR/USD move from the 1.0178 low:
Wave 1: The initial thrust upward from 1.0178 to approximately 1.0353 was characterized by strong buying momentum, accompanied by rising volume—classic signs of the first wave of a new trend.
Wave 2: A shallow pullback followed, retracing approximately 50% of Wave 1, stabilizing near the 1.0267 region, and respecting the Fibonacci retracement levels.
Wave 3: The next leg upward, extending to around 1.0436, showed the hallmark of an extended third wave. This leg was defined by increased market participation, fundamental data supporting the euro, and sustained upward price action.
Wave 4: A sideways consolidation pattern near 1.0438-1.0410 marked the fourth wave, presenting a corrective triangle pattern (a typical fourth wave pattern) that failed to break below key support levels.
Wave 5: The final impulsive move carried EUR/USD to a recent high near 1.0521, completing the potential five-wave structure.
The structure aligns well with Elliott Wave principles, as Wave 3 appears to have the strongest momentum (although it was not the longest), and the Wave 4 termination point did not overlap with the price territory of Wave 1.
Signs of a Trend Reversal: The Infancy of a Corrective Wave 2
After reaching the highs around 1.0521, EUR/USD has shown signs of exhaustion, with bearish divergence forming on momentum indicators such as the RSI and MACD. These are early clues that the bullish impulse may be giving way to a corrective phase.
Currently, EUR/USD appears to be in the early stages of a Wave 2 correction, and traders should watch for:
Fibonacci Retracement Levels: Wave 2 corrections often retrace 50%-61.8% of Wave 1. Key support levels to monitor are 1.0349 (50% retracement) and 1.0308 (61.8% retracement). A healthy corrective move respecting these levels would reinforce the case for a Wave 3 rally.
Although, Wave 2 concluding near 1.0250 (the 78.6% retracement) of Wave 1, a critical Fibonacci level often associated with deep corrections before trend resumption is also a common occurrence.
Volume Analysis: Corrections are typically marked by declining volume, reflecting reduced market participation compared to the impulsive waves.
Bullish Reversal Signals: Look for candlestick patterns, such as bullish engulfing candles or morning stars, near key Fibonacci levels as potential indications of a resumption of the uptrend.
If the corrective Wave 2 confirms with a rebound near the aforementioned Fibonacci levels,
EUR/USD could be gearing up for a powerful Wave 3 rally. Here’s what to watch:
Wave 3 Target: Wave 3 is often the strongest and most extended wave, frequently reaching 1.618 times the length of Wave 1. Using Fibonacci extensions, the target for Wave 3 could be around 1.0800.
Invalidation Level: If EUR/USD breaks below 1.0178 (the origin of Wave 1), the bullish impulse count would be invalidated, and an alternate corrective structure might be at play.
Conclusion
EUR/USD’s rally from 1.0178 to recent highs near 1.0522 exhibits the hallmarks of a 5-wave impulse structure. While early signs of a corrective Wave 2 are emerging, the upcoming price action near key Fibonacci retracement levels will be critical to confirm whether this is a mere pullback before a larger Wave 3 rally unfolds.
Traders should remain patient and vigilant, watching for bullish signals at support levels and preparing for the next potential impulsive move. If confirmed, the third wave could bring EUR/USD to fresh highs, further solidifying the reversal from its long-term downtrend.
Disclaimer: This article reflects an analysis based on Elliott Wave theory and is for educational purposes only. Always conduct your own research and use proper risk management when trading.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.