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EUR/USD: How to Get Your "News" Before It Hits Newswires
A news report can act as a catalyst for the market, but the subject of the report is almost irrelevant.
News moves the markets, goes the universally accepted notion among traders and investors. And yet, using Elliott wave analysis, you can predict market moves – without relying on the news. How is that possible?
Let's look at a fresh example. This one is from foreign exchange – but it really applies to any liquid, freely traded market. On Friday, February 13, Elliott Wave International's intensive Currency Specialty Service posted the following forecast for the most widely traded currency pair, the euro-dollar exchange rate, EUR/USD:
Update For: Monday/Tuesday
Posted On: Fri, 13 Feb 2009 21:44:00 GMT
EURUSD [Last Price]: 1.2863
Trend remains down. Near-term preference is for price to print under the 1.2722 Thursday low, ideally doing so from 1.2920. Repeat: Focus remains on price falling below 1.2707…
The result? On Monday, Feb. 16, the EUR/USD started sliding and on Tuesday, it indeed fell "below 1.2707" – all the way down to $1.2560, in fact – just as Currency Specialty Service said three days before.
Now, you may say that the EUR/USD fell because of Moody’s Investors Service warning to "cut the ratings of several banks with units in eastern Europe…" (Bloomberg) True, the bulk of the slide did occur after the news. And yet, the sell-off was also predicted with Elliott wave analysis – without any prior knowledge of Moody's report. Here's how.
Wave analysis studies and predicts shifts in collective market psychology. Elliotticians know that markets are not logical; they are emotional. In forex, how traders interpret the news is determined by how they collectively feel. If they feel bullish on the USD, they will buy it; if they feel bearish, they'll sell. A news report often acts as a catalyst, but the subject of the report is almost irrelevant. (In fact, as we've already demonstrated, the same news event can be used to explain both bullish and bearish market action.)
Bottom line: The EUR/USD was likely to fall this week regardless of the news. Look at the chart above: Can you see the Elliott wave structure called "a contracting triangle" that's been forming in the EUR/USD charts since January? This pattern usually resolves in the direction of the previous trend – in this case, down. In other words, the market's collective perception of the dollar has been bullish – so news or no news, a sell-off in the EUR/USD was almost inevitable.
You decide what such insight into future market action is worth to you. Our Currency Specialty Service gives you 24-hour-a-day updates on 9 major and minor forex pairs.