Euro--Monday Morning, June 2, 2008
While there is increasing commentary about a top in the eurusd rate, here we consider what is becoming a minority view, that the euro rally has more to go. As John Percival has pointed out, these market views of incipient change in a trend often jump the gun. The euro rally obviously will end at some point, but there seems to be too much complacency about the view that we have reached that point.
A monthly chart, showing the December 2004 top as alpha and the November 2005 low as beta. The high last November at 1.4966 can roughly correspond to the 1.618 delta project.
The "target" here would theoretically be around 1.6950, but it could go above 1.70. (If we take 1.4966 as delta 1.618, the 2.618 projection comes in around 1.7020.)
Looking at this second chart (but the first, with a target of 1.6950 would work the same way) we see the following.
1. From the beta low there is a move up (somewhat impulsively) to the 0.618 level of the alpha-beta base. (Shown in a weekly chart from the end of September 2006.)
2. Then a leveling off and slow steady grind up to the original alpha level in a 3 wave pattern. Notice that the slope of the rally is the same as that which brought the market up to the 0.618 level around 1.29. (Weekly chart from late May 2007.)
3. A period of volatility as the sub-prime credit crisis story begins in the summer of 2007. A sell-off, a new high, and then an even sharper sell-off.
4. Then a very sharp rise in the euro through the Fall of 2007. In this next chart--from the end of November 2007--the rise is much more severely inclined than the previous rally up to the alpha level. It occurs in a 3 wave movement, with a very small and brief retracement once the 1.272 level had been achieved. (In this chart the delta 1.618 level has been moved up to the actual high in November at 1.4966.)
5. Which brings us to the present: another impulsive move after a 3 month period of consolidation, beginning in late February, hitting the 2.058 level by the third week of March, then a struggle to move higher--a struggle marked by an initial sell off, then an irregular back and forth move to a new high, breaking 1.60 on April 22.
Which raises the question whether that 1.6018 high can be seen as part of an irregular correction which began with the 1.5904 high on March 17 (which also corresponds to the culmination of the credit market panic with the fall of Bear Sterns). And indeed when we project the move from 1.5904 to 1.5340 on March 24 as an X wave in a correction (or A if you prefer Elliott), and the new high on April 22 as a Y or B wave, then projecting the length of the X wave from the top of the Y wave, we get a (1.618 times X) target for the Z or C wave at 1.5292. 10 pips above the actual low at 1.5282.
