18 January EURUSD Elliott wave analysis

EURUSD plunged last week as the dollar edged out its peers. The following 18 January EURUSD Elliott wave analysis includes technical insights.

Last week ended with investors’ taking a cautious approach to risks. The market is yet to properly adjust to recent politics in the US. The safe-haven dollar thus banked on the uncertainties to recover some ground after a massive decline sustained since March. Italy has had its own share of political tussles last week which weighed on the EUR across the board. The market has ignored worse US economic data (employment data and retail sales data have come out worse than expected) and the new $1.9 trillion Biden rescue package.

Positivity was absorbed as investors now worry about Biden’s new tax policies and likely unrest that could follow Wednesday’s inauguration from Trump’s supporters. While all these concerns might have led to minor corrections, the larger trend could resume as the long term outlook support risk-on.

First, vaccine development is coming along fast even as the market has now learned to adjust to possible precautionary lockdowns. Over 36 million doses have been administered in 51 countries. Biden could ‘pump’ more money if need be. Dollar weakness could therefore resume and continue throughout 2021 Q1 thus lifting the euro-dollar to a fresh multi-year high.

Also, the banks are not yet ready to relax their current QE and stimulus policies as highlighted by Fed’s Powell last week. Later this week, the ECB will update its policies in the face of the second wave of the virus and vaccine developments. Rates hike is not expected.

18 January EURUSD Elliott wave analysis – Is the 4th minor wave ending?

As we have explained in recent updates, the bullish trend since March is completing an impulse wave pattern of the intermediate degree as the chart below shows. However, wave (5) seems not to have ended yet. The current dip is most probably the 4th sub-wave (minor degree) of (5). At the end, wave 5 of (5) should resume upside toward to at least 1.26.

The chart above shows a double zigzag wave 4 of (5) at 1.206 (4th sub-wave of 3) which is the first ideal target. Below 1.206, we have the 50% Fib retracement level laying at 1.2050. Therefore, traders can watch for reactions around the 1.205-1.206 support zone for possible bullish traction. Meanwhile, a significant breakout surge out of the falling channel above 1.21  is the minimum confirmation that wave 5 of (5) has started.

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