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Forex Market Insight: EUR/USD Rallies…Why?

By Elliott Wave International

On February 16, EUR/USD, the euro-dollar exchange rate and the most actively traded forex pair, surged over 170 pips, from below $1.30 to above $1.3150.

The explanations for the strong rally boiled down to "hopes" that the Greek bond-swap deal would be reached.

As we’ve pointed out before, explanations such as these make sense only in retrospect. They tell you nothing about tomorrow’s trend.

On February 15, while EUR/USD was still in the downtrend, Elliott Wave International’s forex-focused Currency Specialty Service posted the following intraday forecast:

EURUSD (Intraday)
Posted On: Feb 15 2012
1:28PM ET / Feb 15 2012 6:28PM GMT
Last Price: 1.3068

[Approaching a bottom]

The decline from 1.3322 looks mature, though there is no evidence it is complete. Allow for a dip below 1.3027 (to complete a flat correction) but we’re focusing on identifying the upcoming reversal. A rally in five waves at small degree would do the trick.

As expected, EUR/USD indeed dropped below $1.3027 before reversing upward on February 16.

The bullish February 15 forecast was based strictly on the Elliott wave pattern you see in the chart above. The converging trendlines labeled (i)-(ii)-(iii)-(iv)-(v) mark an ending diagonal triangle, which only forms when the trend gets exhausted, and a reversal is near.

This Elliott wave pattern warned one day before the EUR/USD rally began that the collective bias of the forex players about the euro would soon shift from bearish to bullish.

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This article was syndicated by Elliott Wave International and was originally published under the headline Forex Market Insight: EUR/USD Rallies…Why?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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