The recent collapse in the EURUSD is probably the beginning of a larger decline that could reach 1.35 in the next few months. Still, markets do not move in a straight line. Rather, they zigzag, and a sizeable bounce is probably underway now that will correct the extreme bearish sentiment that currently exists.
The recent collapse in the EURUSD is probably the beginning of a larger decline that could reach 1.35 in the next few months. Coming under the 200 day SMA indicates a long term change in trend and the momentum extreme with RSI also suggests additional losses. Momentum extremes occur at the beginning or middle of a trend, not the end (this is why there is divergence at the end of a trend, when rate of change is weaker). Still, markets do not move in a straight line. Rather, they zigzag, and a bounce is probably underway now that will correct the extreme bearish sentiment that currently exists.
The rally from 1.4630 and decline from 1.4908 were both in 3 waves. 2 legs that both consist of 3 waves only happen as part of flats or triangles. If a triangle, then price will remain below 1.4908 but still move higher from current price. If a flat, then price will exceed 1.4908 and test the 1.4980-1.5080 congestion zone before turning lower in larger wave C. We favor the flat in order to relieve the market of excess Euro shorts.
Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week. He is also the author of Sentiment in the Forex Market.
Contact at jsaettele@dailyfx.com
