EUR/USD & DXY – More Close Examination
Dear Traders,
Last week I presented a case for a triangle in the EURUSD and DXY charts. Today’s article will discuss in more detail some less obvious alternatives that could still play out as well. One thing is for sure. Price cannot range for ever and we may soon see a resolution one way or the other.
Overview
Inevitably there is more than one way to count the sub-waves of the EURUSD. But the fact is that price has been unable to break up or down for such an extended period time (i.e. since January) that it begins to smell more of a complex correction than anything else.
This implies that somewhere along the line, we are still missing a wave 5 of some wave degree before we can finally put a lid on the EURUSD uptrend for the time being. But attributing the current range to the swing starting in Nov 2017 does not make much sense in terms of wave size. The best answer to this quandary, for me, is that only Minute wave iiiº completed at one of the highs of Jan/Feb, which I have discussed in my previous EURUSD analysis. (see charts below). This allows the current range to be associated with a larger wave degree.
Corrective Mode Prevails
From a practical perspective, it does not really matter too much which wave degree one counts as complete at the highs of Jan 26 and/or Feb 16 because the fact remains that price action since then does not show us progressively more signs that a bearish reversal has already commenced. Its extended horizontal movement makes the last remaining bearish scenario (a leading diagonal) less comfortable of a fit than a complex corrective structure, especially after the last bullish swing from last week.
In my previous two analyses, I highlighted the possibility of triangle formations in the EURUSD and DXY charts (see next chart below). But the truth is that a triangle is only one of two possible corrective pathways. The triangle would need to be confirmed quite quickly, i.e. price must show a bullish motive wave soon and not cross 1.2215 to the down side anymore.
The alternative corrective scenario is that a complex double three (WXY) is still unfolding (see next chart below). The horizontal price movement fits this formation very well.
It would mean that we are currently somewhere in the middle of swing Y, and would require further USD strength to appear in to order to test the bottom of the range at around 1.2150 again (and possibly even move beyond it slightly). Once this is completed, price should then start rising (again!), but this time hopefully burst out of the range for good, and finally post a new high (unless we would get a very mean and rare triple three correction, which would see us all hanging in limbo for quite some more time).
Any Trade Options on the Horizon?
In terms of trade-ability, it is probably best to wait until the next swing direction becomes clear before going into the fray once more. If we get another bullish swing from current price levels, then a triangle is mostly likely complete and we could trade the breakout of the upper triangle trend line.
If the next impulsive swing is bearish, then the best approach could be to wait for a complete ABC structure to have formed (from the Apr 11 high into the potential new low around 1.2150 – 1.21). Buy opportunities with good odds exist at this point because price needs to create another fairly large bullish swing from there, regardless of which remaining scenario is going to play out in the end (i.e. double three, leading diagonal or triple three).
Conclusions
Looking across to the DXY chart, we see an almost identical conundrum to the EURUSD, and it will probably produce the same pattern ultimately.
Overall, my latest bias favors the double three (WXY) scenario, given that it can be satisfactorily fitted into the structure by shifting the minute and minuette wave counts somewhat.
We may have to wait several more weeks before a final resolution appears. In the meantime, continue to be mindful of potential range-bound trading.
All the best along your trading journey.
Hubert
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