The euro appears wobbly against the dollar

The latest events in Ukraine will put a lot of downward pressure on the euro. John C Burford looks at how that'll affect the longer-term trend.

It has been a while since I covered the EUR/USD cross and today, I thought I would update you on my analysis. There are some important developments taking place that merit my attention and I hope yours as well.

The reason for my recent neglect is simple: there was really not much going on until two weeks ago.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

But with global markets increasingly on a knife-edge and the late news of the shooting-down of an airliner over the Russia-Ukraine border aiding nervousness financial markets are about to experience a lot more volatility.

This will only serve to put upward pressure on the US dollar, and downward pressure on the euro.

Advertisement
Advertisement - Article continues below

The warning sign to watch for

14-7-18-MWT-1

Clearly, the long-term trend remains down, and the rally off the 2012 low is in a clear A-B-C, which is always a counter-trend pattern. That means that when the C wave was in, the next immediate trend would be down.

This is one of my favourite trading setups, where I position with the major trend at the end of the counter-trend C wave.

When the market made it to the 1.40 level, where the Fibonacci 50% retrace met the downtrend line (huge resistance there), that capped off my C wave and the market turned down right on cue.

Note that momentum was losing steam all the way up to 1.40, warning me to get ready for a trend change.

Which way will the new trend go?

14-7-18-MWT-2

The key reversal on 8 May is a stand-out feature. It appears on both the daily and weekly charts.

A key reversal is a very important chart pattern that indicates a major trend change. The market rallied up to the 1.40 level and then was hit by heavy selling to produce a large pigtail and a much lower close on the day. That is a tell-tale sign that the market had run out of buyers and the new trend is down.

Advertisement
Advertisement - Article continues below

The move off the 1.40 level was swift and within a month, the market had lost five cents. It then found support on the trendline drawn off the July 2012 low and the July 2013 low.

For the remainder of June, the market drifted up in a relief rally before turning at the 1.37 level. The market broke below that support on Tuesday. That was a crucial break.

It was crucial because it helped confirm that the market is now very likely in a third wave down.

Also, I can count a smaller wave pattern with waves 1 and 2 off the wave 2 high at 1.37. The market is in this smaller wave 3 down.

That means we are in a third of a third' a very powerful pattern.

How to more accurately forecast wave direction

14-7-18-MWT-3

I have drawn a very good tramline pair and this week, the market has broken lower tramline support and is testing the chart support in the pink zone.

Advertisement
Advertisement - Article continues below

A solid low-risk trade entry was on the break of the green wedge at the 1.36 area. A slightly higher-risk entry was at the break of the lower tramline in the 1.3550 area.

One of the most useful features of Elliott wave theory is that if you have identified correct wave labels, you can make an accurate forecast for the direction and speed of the next move. Very few other methods can give you this vital information.

This setup offers huge potential profits

14-7-18-MWT-4

Here are the Fibonacci levels drawn off the large wave up from the July 2012 low. The market is currently testing the Fibonacci 23% support (as well as chart support). My main targets are the 50% and 62% levels, with the 38% level at 1.32 a major barrier.

The potential profits on this setup are huge, of course. A one-cent move is worth $1,000 for a basic £1 spread bet. For instance, if my 1.28 target is achieved, the potential profit is $8,000 for that £1 bet.

Longer-term, and if my wave labels are correct, the market should eventually reach the start of the A-B-C at the 1.22 area at least.

Those are the kinds of profits well worth working for!

Advertisement

Recommended

Visit/trading/spread-betting/600852/build-profits-with-this-industrial-equipment-rentals-company
Spread betting

Build profits with this industrial equipment rentals company

United Rentals is poised to benefit from higher spending on infrastructure. Matthew Partridge explains the best way to play it.
26 Feb 2020
Visit/trading/spread-betting/600782/boeings-share-price-plummets-heres-how-to-play-it
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Visit/519524/how-my-2019-spreadbetting-tips-fared
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Visit/519285/bettingon-politics-some-safe-labour-bets
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019

Most Popular

Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/economy/uk-economy/601063/the-uks-bailout-of-the-self-employed-comes-with-a-hidden-catch
UK Economy

The UK’s bailout of the self employed comes with a hidden catch

The chancellor’s £6.5bn bailout of the self employed is welcome. But it has hidden benefits for the taxman, says Merryn Somerset Webb.
27 Mar 2020
Visit/investments/commodities/gold/601037/gold-is-on-a-wild-ride-so-should-you-be-buying
Gold

Gold is hard to find right now – so should you be buying?

With demand through the roof and the physical metal hard to find, it's not the best time to buy gold. But right now, says Dominic Frisby, you want to …
25 Mar 2020
Visit/investments/stocks-and-shares/share-tips/601035/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
27 Mar 2020