Article / 25 August 2017 at 11:20 GMT

EURUSD could be ripe for correction

Technical Analyst / Saxo Bank
Denmark
  • EURUSD may have exhausted itself, and could be ripe for a correction
  • A correction could be wave 4 of the pattern
  • A correction to at least 1.1365 seems likely, but it could go as low as around 1.1035
  • After a correction, EURUSD could take off again in a fifth wave towards 1.25-1.26

Euro and USD notes
 From a technical standpoint, a EURUSD down to at least 1.1365 
seems likely. Image: Shutterstock

By Kim Cramer Larsson

Four weeks ago, I said that EURUSD did not face any major resistance before 1.20 and that the currency pair could be headed for 1.25 in a somewhat longer term.

EURUSD, which is now trading around 1.18 level, seems to be trading in a long falling channel extending from 2008 to the present.

After a massive selloff in 2014-15, it formed a triple bottom in a wide sideways trend, with major support at 1.05 (2015-16). It then took off, climbing back to the middle of the falling channel, now reaching the 0.382 retracement of the 2014-15 massive bear move.

That could be the exhaustion of the third wave, with the relative strength index (RSI) rejected at the 60 threshold and the 55-month moving average acting as resistance.

EURUSD could be ripe for a correction, which could be wave 4 in the five-wave pattern.

A correction that could take EURUSD down to at least 1.1365 seems likely. However, it could drop as low as around 1.1035, which would be the 0.618 retracement level.

EURUSD monthly
EURUSD Monthly Source: Saxo Bank


Zooming in on the weekly chart, you can more clearly see the possible waves. When EURUSD broke the falling blue line, the triple bottom got confirmed.

A correction down to test the trendline on the upper side is not unlikely. That would coincide with the 0.382 retracement at around 1.1365.

After a correction, EURUSD could take off again in a fifth wave towards 1.25-1.26, which would be both the triple bottom pattern target and close to the 0.618 retracement.

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The RSI is overbought, but not divergent, so we could see EURUSD higher after a correction.
I have tried to indicate a possible scenario on the chart.

EURUSD weekly
EURUSD Weekly Source: Saxo Bank

— Edited by John Acher

Kim Cramer Larsson is a technical analyst at Saxo Bank
2y
AlexF AlexF
Hi Kim could you do an analysis on PBR chart looks primed for a break out ...(in since 7.85) Peter was also talking about PBR some time ago...
2y
Cat Cat
Interesting charts. Thanks for sharing.
2y
Morris Morris
"The Relative Strength Index was rejected at the 60 threshold, meaning it is still technically bearish (RSI has been bearish since 2010). A close above this point, however, would confirm the bullish picture." Kim these were your words on 01 Aug 2017 article. The RSI will now have to test this level as support and if we have a "Goodbye Kiss" then we are Bullish. The question is how confident are we that wave three is complete i.e. what points to that looking at the weekly and daily charts?
2y
Morris Morris
Important to note as the bottoms were made the RSI was also giving divergence in the weekly and monthly charts!
2y
Kim Cramer Larsson Kim Cramer Larsson
The RSI did seem to be rejected at the 60 threshold on Monthly(this month) . However the month had not yet ended which should of course has been noted.
The RSI cannot however act as a support until it closes above. If RSI closes above 60 end of August we are in bullish for the first time since 2009 where it was briefly above. (one month)
Wave three completed ? Well, the jury is still out after Fridays rally but I believe the 55 MA offers some resistance and since wave 3 has now moved 300% of Wave 1 where it typically moves 1.618 or 2.618 of wave 1 you can say it has stretched it a bit .
2y
Morris Morris
We are are in agreement regards to RSI! But I would like to emphasize theRSI Dvgce on monthly charts @ end of 2015 and end of 2016. What is your mental impression technically on this fact? This may be key to the current trend! Your final take please Kim hope there is? Thanks
2y
Kim Cramer Larsson Kim Cramer Larsson
Morris 2015-2016 Divergence confirms the (tripple) bottom and reversal pattern.
2y
Kim Cramer Larsson Kim Cramer Larsson
EURUSD had a bit more leg to run but this could be the top and reversal we have been looking for. Likely Doji Evening pattern on daily chart. .Divergence on RSI and MACD. Watch out for likely break of rising trend line
2y
Morris Morris
Could it be confirmation of Completion of wave 3(5)?
2y
Morris Morris
Divergences are normally confirmation of something! Trends?
2y
Kim Cramer Larsson Kim Cramer Larsson
It could indeed be completion of Wave 3.
Divergence indicates an imbalance in the market price vs. indicator (RSI, MACD, volume). If price is falling with lower lows but not lower RSI values there is divergence or if price is rising and volume is falling there is divergence ie. the price action is not supported by the indicators. It then indicates a potential reversal.
However, it should be noted that imbalances in financial markets can go on for quite some time. Its merely just a warning signal
2y
Morris Morris
Thanks
1y
Favio Handal Zalaquett Favio Handal Zalaquett
hello kim do you still think that eurusd needs to correct to 1,14 before going up to 1,25?

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