Thursday, 19 January 2012

EUR/USD wedges in to a bottom

In recent weeks I've done more bottom picking than is generally advisable. EUR/USD bottom picking, that is. Here we go again...

The EUR/USD has broken upwards out of a wedge formation, and also back within the corrective trading range that the market has traded in since last May's high.


Much of what I said last week still applies...

For those with an Elliott wave bent, the action since the May high looks like a large completed A-B-C correction, which implies a possible rise to above the 2011 high.

A move above the 2012 high would add confidence to the bullish view. I recommend reading Peter L. Brandt's post on the January effect in forex. At the time he wrote the article, his preferred scenario for the EUR/USD was bearish, but he did entertain and discuss the possibility of a bullish outcome.

The direction of the US dollar (USD) has been the main driver of markets since late 2007 or even earlier, and the EUR/USD is pretty much the inverse of the USD. If (IF) this bullish edge pays off and results in a medium or long-term rise in the EUR/USD, that rise will likely be accompanied by a rise in many other Undollar (ie. non-US dollar) tradeable instruments (eg. non-USD currencies, stocks, commods, gold etc).