EUR/USD Faces A Volatile Week With ECB Thursday

EUR/USD has several signals flashing and it may be a volatile week for the pair as ECB hits the wires on Thursday. EUR/USD staged a reversal evidenced through an evening star candlestick formation on August 29. This pattern carved near the July 2012 low. As a result, it is a compelling pattern suggesting a correction lower may be imminent.

Despite this pattern, EUR/USD traders continue to be bearish the pair since April 18. Though the level of bearishness has ebbed at times, 70% of traders continue to be net bearish EURUSD. Used as a contrarian sign, this is a bullish signal. Check out the live trader sentiment reading.

The Elliott Wave pricing model we are following does show the technical pattern is incomplete to the upside. Taking all of the pieces above, the bearish evening star formation, the bullish sentiment signal, and the incomplete bullish Elliott Wave pattern, we anticipate a correction looming, though it may prove to be temporary.

According to Elliott Wave theory, it appears we finished the third wave (green iii wave on the chart) in the beginning of August. Third waves of an impulse tend to be the longest and strongest and this third wave traveled nearly 1400 pips. (For further study on Elliott Wave impulse patterns, watch this webinar recording.)

From a shorter term perspective, if the wave labeling is correct, then we anticipate a shallow correction back to the 1.16 handle followed by another retest of the 1.20 high to finish off the fifth and final wave of the sequence. I wouldn’t be surprised to see this fifth wave work higher to 1.22 as a couple wave measurements appear in that vicinity.

EURUSD appears to be carving a large expanded flat pattern. There are three Elliott Wave flat patterns you need to know and understand.

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---Written by Jeremy Wagner, CEWA-M

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