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Currency Traders: Free Elliott Wave Forecasts, 36 Hrs Left
Has the U.S. Dollar bottomed for good? Here's your chance to find out FREE.
Adapted from Elliott Wave International'
Whenever I talk about how to use the Elliott Wave Principle in forex trading, I always spend the majority of the time talking about the price patterns R.N. Elliott provided us with over seventy years ago. Those patterns are the heart and soul of the Wave Principle.
But more and more I'm asked prematurely about Fibonacci relationships. While I do believe knowledge of the Fibo relationships between waves is valuable, you have to know which waves are related to one another; that's where wave patterns come in. Otherwise you are just slapping potential relationships on every price movement with no underlying rhyme or reason.
That's why I stress the importance of wave patterns in market charts over every other technical indicator. I often say that, "Structure trumps everything else" – and I believe that. But once you understand the Wave Principle and understand where to apply the Fibonacci relationships, they do provide additional value.
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At times they will help you to determine which one of multiple possible wave counts is correct. At other times, they help you determine where a wave might end. But, again, in the end it all comes back to the wave patterns; they trump everything else.
Lately I've been telling my Currency Specialty Service subscribers that a corrective dollar rally underway since March may be ending. That outlook is based on Elliott wave structure of that move. Having said that, three of the major U.S. dollar currency pairs also show interesting Fibonacci price relationships right now.
In the Dollar Index, I'm suggesting an Elliott wave pattern called "flat correction" may be at an end. In this pattern, wave C typically ends beyond the end of wave A, and wave C is often a Fibonacci 1.618 times wave A:
And guess what? As it stands right now (Aug. 21), wave C has topped in the area where it would equal 1.618 times wave A!
In $CHF, we're proposing a double-zigzag recovery from the low established in March. In a double zigzag Elliott wave pattern, the ideal relationship between the two zigzags is equality.
And guess what? In USDCHF, the two zigzags are approximately equal.
In cable, it's possible to count a simple zigzag correction:
In zigzags, the ideal relationship between wave A and Wave C is equality… and guess what? In the decline from above 2.10, if you measure wave C from the upper end of the correction, the two downward waves they are approximately equal.
In EURUSD we've offered a flat correction as one of two most probable wave counts. In its case, as in the Dollar Index, wave C is close to 1.618 times wave A.
So, three of the four major dollar-pairs we follow (plus the Dollar Index) have viable weak dollar counts. And within these patterns, important Fibonacci relationships are clearly present.
That's why, I think, you have to seriously consider the argument that despite the general belief that the U.S. dollar has bottomed, it may not have.
This story originally appeared on the August 21 Market Insight page of EWI's Currency Specialty Service, a professional-grade forex market forecasting service.
Jim Martens is EWI's Senior Currency Strategist and editor of Currency Specialty Service. Jim started using the Elliott Wave Principle in 1985. He came to EWI in 1993; in 2001, he joined Nexus Capital LTD., a George Soros-affiliated hedge fund, as its technical analyst. A few years later, in 2005, Jim rejoined EWI to resume his work in the forex markets – and we were happy to have him back.
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