The article is written by Masterforex-V Academy, based on the synthesis of cutting-edge analytic techniques involving wave counts (EURUSD) and trading volume (the EURUSD futures).
The previous outlooks were made in late April-early May. They generated a lot of feedback and discussion. So, it is interesting to compare them to the actual state of affairs in order to see whether they manifested themselves before proceeding to the latest forecast.
So, the outlook made on April 26th embraced over 14 years and allowed the reader to understand partially the reasons for the current sophisticated and twisted trading period when conventional trading approaches fail, no matter how advanced you are.
The daily range (volatility) of EURUSD is way smaller in 2014 than in previous years. For example, in 2011-2012, the average range of daily moves was 100-150 points. In 2014, you can hardly see the price moving 100 points even on major news. The range narrowed down to 50-60 points.
One of the cornerstones of tech analysis says that everything is discounted into the market and reflected in the price. We will try to highlight some of the practical things deriving from the postulate in thins article involving the long-term analysis of EURUSD.
The Weekly chart embraces the period from 2000, including the pre-crisis, crisis and post-crisis periods. So, we can see how the price reacted to the so-called global financial crisis.
The pre-crisis period (marked green) was subject to a major rally of the Euro. At that time, the common currency nearly doubled in value against the US Dollar from 0.8226 in 2000 up to 1.6028 right before the start of the crisis in 2008.
A long-term investor who purchased a certain amount of EUR for USD in 2000 and selling the Euro back in 8 years, could have doubled its money.
Technically, the mentioned rally is represented by a long-term wave count (internal wave 3, the bullish reversal became obvious only 1,5 years after setting a major low in 2000 followed by a 3-year-long rally). Further on, after a bearish reaction in 2005, we could see the price rallying for 2 more years. Apparently, this was the best time for buy-and-hold investors. Still, even overextended trends tend to end at some point, which is what happened in 2008. The mortgage crisis in the USA turned into a local financial crisis with bank bankruptcies and inflated further right into a major crisis undermining almost every single economy in the world and making conventional trading strategies fail.
What does the chart show us next? There are some obvious things. First of all, the crisis failed to break the major bullish tendency - the entire crisis reaction (marked red) fits into 50% of the preceeding bullish move. So this was a big-scale reaction without changing the overall bullish tendency set during the 8 previous years.
Most analysts and trading experts fell prey to the psychological pressure of the magic expression “global financial crisis”. There were united in the thought that the world was on the verge of another major crisis in 2009. Yet, another bearish wave took place (marked red) in 2010. However, it barely broke below the low set by the previous bearish move while the 2005 low at 1.1627 wasn’t tested at all.
The reaction was followed by sophisticated and ambiguous price moves in 2010-2011 instead of reaching the parity at 1.000. The price has been going up and down ever since (the period is marked blue).
Technically, there are 2 likely scenarios:
The upward one with the target set at the historical high of 1.6028. In this case, the crisis move will turn out to be a bearish reaction to the long-term uptrend.
The downward one with the target set at the parity of 1.000. In this case, the blue-arrow move will be a complicated extension of the 3rd crisis wave, which means that all the efforts made by the financial elite to improve the situation and to smooth the consequences of the crisis will be vain and inefficient.
Now let’s switch to the Daily chart to analyse the move since mid 2012.
In July 2012, the previous downward move of a bigger level was over (the green arrow). This is the time when another rally started, and it is still underway. The first red line inside the move fits well in to conventional reversal patterns. After a reaction, the price was expected to hit 1.4250 – 1.4500 but the price failed to draw a full-fledged bearish reaction. The price should have retraced down to 1.2400 – 1.2250 after the Cyprus crisis. However, the reaction was suspended by a sudden nightly move when EURUSD skyrocketed by more than 400 points on July 10th. This created an extreme point (brown circle), which was the starting point for another rally.
An interesting spot to focus on is the move seen in late October – early November 2013, when the price started going down, thereby hinting at the reversal nature of the move. On November 7th it turned out that the move was provoked by the ECB's interest rate change. Still, the next move failed to create a reversal.
As a result, we can see a faint increase that resembles a reaction instead of a clear momentum.
The likely bullish target is 1.4246.
The outlook made on May 5 is more of practical and specific. Several scenarios are probable. We can see a step-by-step rally from one volume cluster to another. The volume cluster at 1.3520 is a long-term level of support. This scenario doesn't include a full-fledged retracement.
The H4 bullish structure started in February indicates a complicated set of internal wave. We can see a clear reaction to the volume cluster at 1.3675, which stayed unbroken.
On March 13th, after setting a new long-term high, the price retraced with a rebound from 1.3675. Then we should focus on the volume clusters at 1.3793 and 1.3820. Friday's «payrolls” didn’t hint at the intensions of the market, which was probably caused by the ECB’s delay in its interest rate decision.
The latest outlook embraces the move since March 13th (almost since the very beginning of the current EURUSD futures).
If to compare this picture to the preceding one (above it), we can see that the downward scenario (the red line) manifested itself through a more sophisticated move than expected. First, the long-tem high was broken on May 8th, which was followed by an instant drop below the mid-term support levels at 1.3793 and 1.3675.
This move (inside the triangle) indicates a break below 1.3710 as well as the brown and green Mas. At the same time, the red bearish move has almost no reactions inside.
The long-term support at 1.3520 is still untested, the downward range is over 400 points. The key question: Is the mentioned red bearish wave a reversal wave or the end of the 3-wave reaction count (which will be followed by another rally above the local high)?
The closest major new releases (Thursday's interest rate decision and Friday's unemployment) are likely to bring some clarity with them. Well, for now, we can underline that the key volume cluster inside the bearish move started on May 8th is located at 1.3713. It is below the preceding cluster at 1.3793.
If the downswing continues, the support levels ot watch are 1.3520, 1.3476. If there is a reaction to the bearish move, it is likely to head for 1.3713, 1.3793. If the rally resumes, the price will probably break above them. In order to make specific trading decisions, it is necessary to witch to smaller-scale timeframes and to analyze the local wave counts and volume clusters.
