EUR/USD Elliott Wave Update Ahead Of ECB Meeting

The current Elliott Wave count has focused on a turn lower following a 55-day correction from Brexit lows. Since the past update, the pair has pushed below support seen at 1.1131 to break range support.

Prior Elliott Wave updates were focused on large retracements as market sentiment had not shifted following the 55-day bullish trend after the UK vote. With the break below support at 1.1131, sentiment has shifted, with an increased bearish viewpoint among market participants.

There has been a large focus on market psychology in the current sequence lower from August 18 highs at 1.1366. The early stages of the current trend had accompanied deep retracements, with markets not convinced that a turn in trend had taken place. With the range break, and market sentiment shifting, the viewpoint on retracement changes as well. During this stage of the sequence, it is expected that retracements will be shallow.

Shallow retracement increases the difficulty of accurately counting waves, and often Ellioticians will dismiss a pullback as a wave completion as the structure is not as obvious. Looking to the smaller time frames can help spot the completion of a wave sequence.

Last week, a bearish sequence of a smaller degree completed at a low of 1.0985. The low has been labeled as wave W. The wave count suggests that the entire sequence from wave (B) highs found at 1.1233 on October 5 has completed and that a new sequence is about to start.

Following the completion of wave W, the retracement at wave X completed at 1.1058. It is expected that the next leg lower should take the pair to at least the 1.0900 handle to complete wave Y of wave (C), and any recovery attempts would be sold ahead of 1.1058.

A trade setup was published based on the Elliott Wave count on September 22. The setup carried an entry at market, with the pair trading at 1.1242 at the time. The stop loss was set at 1.1367 and target at 1.0570. While the current count suggests that a new cycle has started from Thursday’s high at 1.1058, moving the stop loss to 1.1059 would lock in 184 points of profit but carries some risk as the retracement following the completion of wave Y of wave (C) can prematurely stop the trade out.

Once the next leg lower completes, a broader correction is expected to retrace against wave (B) before once again turning lower. The correction will tend to be longer in time and price. For this reason, the stop loss for the trade has been moved to break even as wave (B) at 1.1233 is not expected to be retested.

The invalidation for the current wave count has been moved to wave (B) highs at 1.1233.

EUR/USD 4-Hour Elliott Wave Count

EURUSD EW 4h Oct 18

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.