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"Kaboom!" Goes the Euro
After the sharp sell-off in EURUSD, where to next?

By Vadim Pokhlebkin
Mon, 18 Mar 2013 17:15:00 ET
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While news doesn't change a market’s broad trend, investors’ emotional response to a potentially sensational story -- such as the banking crisis in Cyprus -- can add to short-term volatility.

We saw an example of that on March 17 and 18 as EURUSD, the euro-dollar exchange rate and the most-traded forex pair, went into a tailspin.

The mini-collapse was a sight to behold. Well, to be exact, there was literally nothing to see: On a 15-minute chart, the downward gap was just a blank space.
 
 
On Sunday night, our Currency Specialty Service team was watching the euro fall in real time. From an Elliott wave perspective, that huge gap could be a wave 3. Third waves are the strongest and fastest waves within the basic 5-wave Elliott wave pattern. And what could be "faster" than a gaping hole on a chart?
 
This scenario implies that soon EURUSD might be headed lower again, to finish the sell-off sequence.
 
There is just one big "but" in this argument.
 
Notice the divergence between the British pound and the euro. Look how high GBPUSD (a.k.a. "cable") has come off its March 12 low (circled in green).
 
 
The sterling hardly flinched when the euro crashed and burned on Sunday night.
 
So, we have cable moving steady-to-higher while EURUSD falls. One of them is going to give it up.
 
 
 
 
 

 

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