During 2009, the pair traded among the lowest at 1.2455 and the highest at 1.5144, and with applying Fibonacci ratios on the direction, that was generally bullish, we can see that the pair currently trades above 38.2% at 1.4125 and above the 50% at 1.3800; in role this indicates the possibility for an upside direction to prevail in 2010; RSI is trading in oversold areas and that increases the likelihood for the upside direction to return. The bullish 2010 outlook will remain valid as far as trading is above 1.3800 while 61.8% correction at 1.3490 provides further support for the trend.
We can see on the same chart a bullish pattern, where the neckline is nearly at 38.2% level mentioned above, and this patter targets areas around 1.5410 meaning that stability above 1.4125 will keep the general upside move valid influenced by this classical pattern.
Trading below 100 Days MA provides negativity for the direction, while breaching 23.6% at 1.4515 accelerated the downside move as seen on the chart above, and for the upside wave to be confirmed the pair must return to trade above 100 MA which currently stands at 1.4615.
The pair’s upside move ended near the 76.4% correction shown in the second chart, and we can also see that a harmonic bearish pattern might be the cause behind starting 2010 trading to the downside. The harmonic pattern targets 38.2% correction mentioned above and it is the CD leg correction for the harmonic pattern; the targets might extend toward the 50% correction at 1.3800 and this theory finds some confliction between harmonic and classical analysis. Classically, the upside wave remains valid as far as 1.3800 is intact, while harmonically the downside targets are respectively at 1.4125, 1.3800 and then 1.3490.
The harmonic pattern shown above is not flawless, as the pattern is closer to be a Gartley pattern, as the relation between point B and point D are incomplete in addition to the BC leg correction of the AB leg was bigger than the ideal 88.6%; nevertheless, this was the closest harmonic pattern to fit the pair.
This analysis assures that the initial direction for the pair's trading this year is expected to be to the downside, and then the general trend will be decided according to 1.3800 on whether the harmonic pattern will settle for this target or not.
According to Elliot theory, a number of scenarios surface in assessing the pair's movement, where confliction has been seen over the nature of the general trend that started back in the 90s, where some relate that back to the Mark and other see that the count started from the beginning of the upside wave on October 2000; due to those reasons, we are to study the last wave that developed during 2009 and specifically since March. We see that we have an IM wave, constructed of 5 internal waves which can be described as a complete IM wave as explained on the chart below.
Despite the complication of the waves provided above, the numbering gives an indication that it was an IM wave, which means that we are currently in the second downside wave, which will end at one of the proposed targets for the harmonic pattern. Even if opinions differed slightly over the wave being a Base Impulsive Wave or an IM within a higher ranking correction pattern, meaning a Motive Wave, in both cases it means that a new top has to be recorded. Since we are projecting the targets for 2010 we are to consider the closest targets until we can verify the nature of the IM wave mentioned throughout the year’s trading.
The suggest target for the new top depends on the current correction and its depth. Where if the pair settles for 1.4150 – 1.4120 the suggested target for the top will be at 1.5785 and it will be the first target for the coming wave, followed by 1.6785; while if the correction continued towards 1.3800 the first target will be at 1.5445 and the second at 1.6475. Yet of the correction was deeper towards 1.3490, the first target will be the previous top at 1.5145 followed by 1.6140. Note that this scenario relies on constant trading above the last correction level mentioned hereinabove.
In case the pair failed in consolidating above 1.3490 with a weekly closing, then the general outlook will change and a classic scenario will be initiated as follows:
Assessing the pair over daily basis, we can see that the pair breached the support level for the rising wedge pattern shown on the chart below, which in role activated the serial downside waves after 76.4% correction restricted the pair’s upside move. The initial target for the current downside wave will be at 1.4185 and then a slight upside correction will be seen before resuming the downside which targets 1.3480 which is 61.8% correction for the entire upside wave which started from 1.2455 and ended with the recorded top at 1.5144; the support is considered the key in confirming the downside trend which mainly targets areas around 1.2450. in short, the stability for 76.4% correction, the breach of the rising wedge support, and trading below the 100 Days MA makes us expect a general downside move for the pair.
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