EURUSD recoveries continue above 1.11 as the US and China set to begin a trade truce. The following looks at the short-term EURUSD Elliott wave analysis.
January 15, 2020 | AtoZ Markets – The Euro-dollar currency pair is recovering this week after a dip below 1.11. The currency pair is now aiming 1.12 amid US-China trade deal reports in Washington. The USD has seen some weakness this week after disappointing CPI data. It now looks likely that a retest of the 1.125 resistance level will happen. The bullish bearish correction from 1.088 is still on course although the long-term bearish trend is still intact. Investors will now look forward to reactions following the US-China trade deal speculations.
The market is reacting mildly to the official signing of phase one of the US-China trade deal on Wednesday. The deal was supposed to be a boost for global economic growth. However, the details did very little to help in that regard. The US decides to retain tariffs on some goods until phase two of the deal is agreed and signed. The USD, as a result, is under pressure thereby guiding EURUSD above 1.115. Meanwhile, new reports suggest that the Eurozone might also be hit with new tariffs from President Trump. Is the US starting a fresh trade war with the zone? If the war builds up, we will most likely see EURUSD resuming the bearish trend. The Eurozone is yet to completely come out of the 2018/19 economic woes, an additional one will weigh heavily and hamper with the ECB’s easing policies.
EURUSD Elliott wave analysis
Technically, the current EURUSD rally from 1.088 is corrective. The price is not yet out of the long-term bearish trend. Therefore, if the price completes a known corrective pattern, we should see a decline toward 1.1 or even the continuation of the bearish trend below the 1.088 low. In the last update, we used the chart below (charting tools from TradingView).
We identified a developing zigzag pattern. Wave (c) was completing an ending diagonal pattern. We, therefore, expected the price to touch 1.11 or even lower. However, a dip to 1.1085 violated the ending diagonal pattern (wave iv > wave ii). The chart below now shows the entire rally from 1.088 developing a leading diagonal pattern instead.
Wave 4 of the leading diagonal ended at 1.1085. Wave 5 should shoot above the 1.1175-1.12 resistance zone and hit prices around 1.13. If this happens, then the bullish correction from 1.088 will go higher but that will happen after the price corrects the diagonal to prices around 1.11 or 1.10. On the other hand, a ‘head and shoulder’ reversal pattern is emerging. The current rally might complete the second shoulder especially if the 1.1175-1.12 resistance zone holds. A fall below 1.1085 afterwards might eventually lead to EURUSD price slumping further below 1.088 to new lows.