EURUSD – The Dollar Dominates — But for How Long?

Over the past week, the dollar continued its domination over the most active forex pair, causing it to decline more than 350 pips.

Still, the technical picture doesn’t look too good for the dollar. All momentum indicators are showing that the pair is severely oversold, and the pattern from an Elliott Wave perspective is strongly arguing for a halt, perhaps even a full-scale trend reversal.

We’re updating our count to reflect the most recent price action and to present tighter targets and invalidation points.

6-Hour Main Count

– Invalidation Point: 1.3504
– Confirmation Point: 1.2762
– Upwards Target : 1.2785 – 1.2960
– Wave number: Minor 4
– Wave structure: Corrective
– Wave pattern: Zigzag, Flat, Triangle, or Combination

Main 6-Hour Wave Count

The bigger picture sees the euro moving downwards in intermediate wave (A), which is forming an impulse labeled minor waves 1 through 5.

Minor wave 3 has been forming an impulse labeled minute wave i through v, and has reached nearly 261.8% the length of minor wave 1.

Within it, minute wave iii formed an impulse labeled minuette waves (i) through (v), reaching just about 161.8% the length of minute wave i.

Within it, both minuette waves (iii) and (v) unfolded as impulses labeled subminuette waves i through v.

Minute wave iv formed a double zigzag labeled minuette waves (w), (x) and (y), retracing exactly 23.6% of minute wave iii.

Minute wave v has been unfolding as an impulse labeled minuette waves (i) through (v), well exceeding 100% the length of minute wave i, and coming close to reaching 100% the length of minute wave iii.

Within it, minuette wave (i) formed a leading diagonal labeled subminuette waves i through v.

Minuette wave (iii) formed an impulse labeled subminuette waves i through v, exceeding 161.8% the length of minuette wave (i).

Minuette wave (iv) retraced exactly 38.2% of minuette wave (iii).

Minuette wave (v) has already reached 100% the length of minuette wave (i), driving minor wave 3 to come very close to reaching 261.8% the length of minor wave 1.

This count expects that minuette wave (v) — and thereby minute wave v, and thereby minor wave 3 — is either complete or very near completion, and that the euro is about to start moving towards the upside in minor wave 4.

The MACD indicator — as well as the RSI and Stochastic — support this count by showing a sustained bullish divergence between the ends of minute waves v and iii, which is the typical momentum signature at the end of 5-wave impulses.

In terms of candlestick analysis, no clear pattern appears at this point, although several Dojis are forming at the bottom of minor wave 3, which is typically a sign of indecision and possible reversal.

In addition, price has already touched the lower trend line of the channel drawn around minuette waves (i) through (v).

At 1.2785 minor wave 4 would retrace 23.6% of minor wave 3, then at 1.2960 it would retrace 38.2% of its length. Note that these targets are based on the current bottom of minor wave 3, and they have to be adjusted if a new low is formed.

This wave count is invalidated by movement above 1.3504 as minor wave 4 within this impulse may not enter the price territory of minor wave 1.

No invalidation point for this count can be placed on the downside yet, as we have to wait for the new wave to start subdividing.