Executive Summary
- EURUSD pattern suggests more downside trend after a brief rally
- Bearish forecast is valid so long as EURUSD holds below 1.1214
- Downside targets include 1.0450 and 1.0300
Event Risk for This Week
There are a couple of large event risks looming overhead that may impact EURUSD this week. Let’s review the event risk and the Elliott Wave counts.
First, on Tuesday, November 5, we have the US Presidential Election.
Polling suggests the results of the popular vote may be close. However, the US employs an electoral college which means the winner of the popular vote in each state earns a specified number of votes from the electoral college for that state. If we have a concession and a declared winner by 6am London time on Wednesday, that would be a quick result. It is possible in a really close election a winner may not be declared for a couple of days.
Secondly, on Wednesday, November 6, the Fed begins a 2-day meeting to discuss the latest round of interest rate expectations. The announcement for interest rates will be made publicly on Thursday, November 7 at 7pm London time., we have the Fed announcing its latest round of interest rate expectations.
Source: CME FedWatch
The street is wholly expecting a 25 basis point rate cut. The press conference at 7:30p will shed light on what the Fed’s policy may be moving forward into the rest of 2024.
EURUSD Halts Abrupt Decline at Trend Line Support
After reaching a high of 1.1214 in September, essentially forming a double top pattern, EURUSD has declined in a very strong downtrend. The downtrend has stopped abruptly at an upward sloping support trend line.
From an Elliott wave perspective, we are viewing the current bounce higher from the trend line to be a temporary bounce and partial retracement of the preceding downtrend.
Our analysis shows the decline that began in September is wave C or wave Y of a multi-year correction that began February 2023.
If the decline is wave C, then we anticipate 5 sub-waves to develop to the downside. If the decline from September is wave Y, then we anticipate 3 sub-waves to develop.
Well, right now, the bounce from the trend line appears to be only the second subwave. Therefore, we can state that under the Elliott wave model we are following, the pattern appears incomplete to the downside.
How High Can the Current Rally Trend?
When applying the Fibonacci retracement level to the September-October downtrend, we target the 61-78% retracement level for the move higher. EURUSD could trend less than 61% or greater than 78%. However, the 61% level tends to be a general target. This suggests a rally to 1.1000-1.1115 would be considered ‘normal’. Remember, this would be a corrective bounce within a larger downtrend.
If 1.1214 is broken to the upside, then this Elliott wave model we are following is likely incorrect and we’ll need to reassess.
Once the secondary top is in place, then we anticipate the blue support trend line gets broken with downside targets of 1.0450 and possibly 1.0300.
Bottom Line
EUR/USD appears to be in a corrective bounce higher that may carry it up to 1.1000-1.1115. EURUSD does not have to reach 1.1000. Once this top is found, then a resumption of the downtrend presses EURUSD to 1.0450 and possibly 1.0300.
This forecast is valid so long as EURUSD remains below 1.1214.
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