The euro hits my target at 1.32

As market activity winds down for the Christmas break, I expect trading volumes to slacken off. But that doesn’t necessarily mean volatility will follow. 

Rest assured though, any moves in this period are still valid for my trading methods, and I will be observing them with the same diligence as usual.

I have neglected the euro recently since we have seen some great examples of tramline, Fibonacci and Elliott wave action in the Dow and gold that I just had to cover.

I hope you have found a trade in gold that I set on Friday – I shall get to that before the break.

In my last article on the euro, I had some targets set. The first was in the 1.32 region, as the market had rallied above my long-term tramline.

This was the picture then on the hourly chart:

EUR/USD spread betting chart

(Click on the chart for a larger version)

The red line is my long-term downtrend line drawn off the touch points from 2011. To refresh our memories, here is my long-term chart:

EUR/USD spread betting chart

(Click on the chart for a larger picture)

The market has clearly broken above my red line for the first time in over a year. This is potentially bullish. But one caution is that momentum is lagging price (so far) – as marked by my green bars. The question is, is this upward break to be trusted?

And this is the hourly chart as I write:

EUR/USD spread betting chart

(Click on the chart for a larger picture)

The rally off the 13 November low to the red trendline is a beautiful five-wave pattern. That was straight out of the Elliott wave textbook. Note the negative momentum divergence at the ending fifth wave to confirm the end was nigh.

And, as our Elliott wave knowledge could forecast, the decline was in an A-B-C and reversed right at the Fibonacci 50% support. Again, pure textbook.

I hope you see that with this basic knowledge of Elliott wave theory combined with Fibonacci retracements, you are able to make very accurate forecasts with which you can place correct trades.

You will see that I have some tramlines drawn in on the latest leg up, so let’s take a closer look:

EUR/USD spread betting chart

(Click on the chart for a larger picture)

I have my original tramline pair in red – and right away, my 1.32 target has come within a whisker of being hit this morning on the overnight Japan election news. Nice.

But just look at the pattern I have drawn in green on this latest leg. I can see a very convincing five-wave pattern contained between my black tramlines. If we are in the fifth and final wave up, then we should expect a decline to start at any time.

Also, we have a crossing of the upper black tramline and the lower red one – a point of enhanced resistance with the market currently trading in this area.

Naturally, if the market can break the lower black tramline – and the red long-term trendline, which crosses it – that would give this morning’s high a high-probability top.

One other important indication that we may see the top in this region is this:

 EUR/USD spread betting chart

(Click on the chart for a larger picture)

This is the daily chart showing the rally off the 1.20 low in a clear five-wave move. These labels obey all of the Elliott wave theory rules and guidelines with a large third wave topping on very high momentum and an A-B-C in the fourth wave.

With the slight new high today – and with a potential negative momentum divergence (red bars) – we are now in the fifth wave, which could end at any time. Thus, we are potentially in two fifth waves of different degree.

I shall be on the lookout for signs of a reversal and hope to have a trade soon, when I will get up off my hands.

Incidentally, at my workshops in April and September, I gave a bonus trade as one to take a serious look at. It was the USD/JY. At both workshops, I had set my first major target at 84, which was just hit in overnight trading as the Japanese election results came through. I am planning more workshops for 2013, so do watch out for my announcements.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading

Advanced tramline trading

An introduction to Elliott wave theory

Advanced trading with Elliott waves

Trading with Fibonacci levels

Trading with ‘momentum’

Putting it all together

• Don’t miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I’ve written them, just sign up here
. If you have any queries regarding MoneyWeek Trader, please contact us here.

4 Responses

  1. 17/12/2012, phil wrote

    As always, interesting. Would be interested to know how this 5 wave up fits into what is seemingly a long term down trend. I would also like to see John’s long-term labelling for gold (from the Sept high last year) which, to the best of my knowledge, he hasn’t produced yet.

  2. 17/12/2012, Ethan wrote

    You’ve inspired me to want to study Elliot Wave theory more intensively and comprehensively. If my memory doesn’t fail me, I think that you mentioned that you’ve been a student of the theory for many years. Can you recommend the literature that has been most influential in your understanding and interpretation of it?

  3. 20/12/2012, phil wrote

    Ethan, go to elliotwave.com. There’s a lot of good free stuff on there, though a lot of it also has to be paid for. There’s an excellent handbook which will explain the basics – free.

  4. 21/12/2012, Ethan wrote

    Hi Phil, thanks. I am actually familiar with the basics, what I am looking for is much more detail. In other words, I am looking for the equivalent to Murphy’s Technical Analysis (or “bible” as so many refer to it) for Elliot Wave. I’d like to understand it comprehensively.

Commenting on this article closed

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