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EURUSD continues downside after a sharp bounce

Sanmi Adeagbo | May. 16, 2019
EURUSD continues downside after a sharp bounce

EURUSD continues downside below 1.12 on Thursday after a sharp bounce to 1.1225. The following insight is based on the Elliott wave theory.

May 16, 2019 | AtoZ Markets - The short-term bearish sentiment has resumed on EURUSD. The currency pair could not sustain the big intraday upsurge to 1.1225 on Wednesday. On Thursday, price broke below the 1.12 handle once more. This time around, it might not look back. It now seems price will return downside to continue the 15-month bearish trend to a new low.

The EURUSD was upbeat over the US car tariff delay. USD tanked as a result of this. But the effect of the delay was short-lived and the pair turned around amid Italy's debt concerns. The country's debt-to-GDP ratio is about to break EU's benchmark of 3%. The Euro-zone economy remains under pressure as one of its largest economies continues to stagger. 

Meanwhile, the US-China trade war still continues. More actions are expected to follow as the two giant nations show superiority. Related headlines could cause spikes. EURUSD is returning downside and could break below 1.1175, 1.1133 and 1.111 on its way to make a new low since June 2016. There are no high impact economic events for the rest of the week. 

EURUSD continues downside after a sharp bounce: Elliott wave analysis

The multi-months bearish impulse wave was expected to end at 1.111 but the price is showing signs of one more leg to a new low before the 3-wave rally. According to Elliott wave theory, a 3-wave correction follows a 5-wave trend. In the last update, the chart below was used to show the possibility of an ending diagonal pattern below 1.111.

Wave (v) of the diagonal is ongoing as expected. Price should dip further below 1.111 to 1.1075 diagonal support level. At the top of the wave (iv) is a reversal head and shoulder pattern as the chart below shows.

Price broke below the neckline at 1.1225 and then resumed downside to confirm the head and shoulder turning point. Unless another fast break above 1.1225 happens, the bearish trend is expected to continue below 1.111. If there is a reversal pattern afterwards, the 3-wave bullish correction to 1.18-1.21 could happen.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.