EURUSD dropped below the 1.11 handle after the ECB minutes. The following EURUSD Elliott wave post ECB analysis looks at what could happen next.
October 24, 2019 | AtoZ Markets – The Euro-dollar currency pair started bullish on Thursday after a better than expected French PMI. Shortly after touching 1.116, the resurgence fizzled out to 1.1125 following a worse than expected German PMI. After the ECB meeting, the price continued downside to hit 1.1105 intraday support level. The level looks weak thus might not be able to hold the current dip.
The ECB report today came rather uninspiring to traders. The bank left rates unchanged in its monetary policy minute on Thursday. Although the outgoing ECB president Draghi warned that data has worsened, he left very little to hold on to concerning future projections. As a result, the volatility after the meeting was moderate. The bears are able to capitalize on weak data to test the 1.11 handle. Traders will look for more clues next week during the FOMC minute and the US employment data.
Technically, the EURUSD price should decline further to the next intraday support level at 1.106 before the 1.10 psychological level. If the dip is limited at or above 1.106, we might see the bulls push higher toward the 1.125 resistance level. Overall, the recovery from 1.088 looks corrective and impulsive at the same time. EURUSD is at a crossroad. Until its short-term pattern is clear, it will remain high on risk especially for short-term speculators.
EURUSD Elliott wave post ECB analysis
In the previous updates, we identified the rally from 1.088 to be completing a triple zigzag pattern. Triple zigzag patterns, more often than not, look similar to impulse waves. After the price knocked off the top of the channel and above 1.11, we had an alternative impulse wave scenario in the last update. We used the chart below.
This scenario expected a gradual rise away from the channel up to 1.13 where the impulse wave was expected to complete. However, it dropped back into the channel (below 1.11) after the ECB meeting thereby splitting into two highly likely scenarios. The following is the EURUSD Elliott wave post ECB analysis.
1st Scenario: impulse wave rally
This scenario supports what we had in the last update – an impulse wave rally. The current dip- wave iv of (iii), must be supported at the 1.11-1.106 zone to validate this scenario. If it breaks above wave iv channel, buyers will look for opportunities to ride to 1.125-1.13. On the other hand, if the current dip continues below 1.106 intraday support, we will no longer hold on to the impulse wave expectation. The alternative below will be more appropriate.
2nd Scenario: double zigzag rally or more complex bullish correction
The scenario above shows a double zigzag pattern completing at 1.118 from 1.088. Wave (w) and (y) have a 100% Fibonacci relationship (equality). To confirm this scenario, an impulse wave break below 1.106 should happen. Sellers will have to be patient and wait for a 50% bounce afterwards. We may just be looking at the build-up of another bearish swing to a new low (below 1.088). On the other hand, if the dip is shallow and slow, the price might morph into a much higher and complex bullish corrective pattern.