Catching the 5th Wave: The EUR/USD

Introducing the EUR/USD this week

This week we are moving off the GBP/USD to take another look at the current countertrend with the EUR/USD currency pair. This pair is moving sideways on the weekly chart but a potential trend may be developing. Our technical analysis shows a potential fifth move of an Elliott Wave could be occurring.

What would this mean for the currency pair?

This could mean that the EUR/USD pair will move lower as the USD regains some of its lost value from past weeks. Recent good news about the US economy could help fuel this movement. While bad news from Europe might do the same, it is not likely to have the same impact as good US news.

Most recent news from Europe focuses again around a Greek revolt against the recent austerity measures put in place. While the government finally passed the harsh bill to make good on their debt, it did not go over so well with the Greeks themselves. Protests and riots sparked up throughout Greece, causing massive damage and concerns over stability. However, the austerity measures are in place, even amongst the protests and general revolt. But, the better news, if you want to bet on the 5^th Elliott Wave occurring, is the positive news coming from the United States.

The current situations

One of the big stories to come out this week is the deal made on extending the payroll tax cut in the United States. This keeps in place the previous cuts that moved the employee’s share of the payroll tax from 6.2% down to 4.2%. This will not likely be a major additional boost for the US economy since the cuts have already been in place and are only being renewed. But, it will prevent a slowing of spending that would slow down an already fragile economy. Considering the amount of political deadlock taking place earlier in the week, the payroll tax cut extension will be welcome news to traders betting on a stronger Dollar.

On the other side of the pair, there have been no major economic reports outside of Europe to suggest a strong or stable recovery. Even the “good” news of austerity measures being accepted in Greece was tinged with riot police and massive protests throughout the debt-crushed nation. Compare this bad news to the new of the payroll tax cut gaining new life in the United States and it is easy to see who the clear winner is on this one.

Another good trend that has caught the eyes traders is the return of many factory jobs from overseas back to the United States. This unexpected trend not only has returned thousands of previously lost jobs, but points to even more coming back stateside.

Why is this happening?

There are a couple of reasons.  Raising worker wages overseas along with higher fuel prices for shipping have made outsourcing less profitable for many manufacturing industries. Add in the recent resurgence by companies like Ford and Caterpillar, and this helps explain why tens of thousands of more manufacturing jobs are expected to develop in the US over the next few years.

These two major bits of good news further support the idea that a fifth move of an Elliott wave is going to take place in regards to the EUR/USD currency pair. This means that we are going to look at the Euro losing strength while the US Dollar is poised to gain. When the two are put together it becomes pretty obvious who the most likely winner is going to be.

What to look for ahead

There are three main points here. The first and most obvious is to track this currency pair using Elliott waves as your method of technical analysis. Since we are looking for that fifth movement, watch the sideways movement of the EUR/USD. If this currency pair is moving towards a fifth Elliott wave to the down side, then that is a strong sign to short this currency pair.

The second point to note is positive US economic news. More stories like the payroll tax extension could fuel the fire and mean a stronger Dollar. The payroll tax cut and bump in manufacturing could soon have the EUR/USD trending towards the USD.

Finally, you still want to pay attention to negative news on the EUR. While not as strong on this pair as positive US news, it will not take much of the former to further enhance the effects of the latter. If any of these are working in combination then the effect will be even more amplified.

Summary review

Pay attention to the Elliott waves in regards to the EUR/USD currency pair. Watch out for positive economic reports from the United States. Ditto for negative reports from Europe.  If you see this trend developing, you want to short the EUR/USD to bet on the surging USD.

There are two ways to play this: long term and short term. Below I show you my exact entries and exits for both a long term and short term play.

The long term move might not happen this next week, however; but make sure to keep an eye on it in case it does. We are looking to go short below 1.2620, risking 1.2859 with a 1.2142 take profit.

One of the two short term trades should occur within the next few sessions. Depending on which direction this pair breaks, we are looking to grab a quick few pips. Buy long at 1.3323, risking 1.3293 with a 1.3333 take profit. Sell short at 1.2972, risking 1.3002 with a 1.2962 take profit.

Good investing,

Jason Fielder

Related posts:

1. At a EUR/USD Crossroads Looking Both Ways…
2. Switch Tactics In The EUR/USD To Lock In Gains
3. We’re Looking to Sell the EUR/USD on a Pull Back
4. Even With Many Unknowns the EUR/USD Trend Is Down
5. Riding Out the GBP/USD: Old World Versus New World

Other posts by Jason Fielder