Market Analysis

Some Euro/Dollar Bulls Are Taking An A-B-C Approach

Germany’s Deutsche Bank recently raised its end-2017 and 2018 forecasts for euro/dollar (EURUSD) to 1.1700 and 1.2000 respectively, characterising their outlook as “a EUR bottoming phenomenon more than a broad USD top story” and noting that “the strong precedent for the EUR bottoming against the USD a long time before most other currencies includes the big USD tops of 1984/5 and 2001/2.”

 Euro/yen bulls might find that latter point of interest.

Across the world, Tokyo-based analysts at Mitsubishi UFJ Morgan Stanley Securities (MUMSS) also see upside potential for euro/dollar. It is MUMSS’ technically-driven view that “EURUSD could test 1.16-1.17” although “as of June, we did not think the uptrend for the EURUSD pair would last for a prolonged period.

” However, MUMSS now contends that “the USD will, in fact, keep weakening” and now expects “the uptick in the EURUSD to continue for some time.”

Applying Elliot Wave Theory MUMSS believes “the EURUSD has been in a flat holding pattern (A-B-C) since the 2015 low (1.0458), with the C wave tracing the uptrend since the January 2017 low of 1.0341.

 The C wave suggests that EUR/USD could eventually test 1.16-1.17.” In addition, MUMSS argues that “EURUSD [at] 1.20 [is] not out of the question.”

 Their technical view is that “if the chart pattern since 2015 is actually forming an expanded flat, then the EURUSD could even eventually test 1.20.

 The rise in the C wave is often around 1.382x the uptick traced by the A wave (here, a 0.1256-point rise in the EUR/USD from the March 2015 low to the Aug 2015 high).

 Using these two pieces of information, the current uptrend would take the EUR/USD to around 1.2077.” Whether traders will agree that euro/dollar is as easy as A-B-C remains to be seen.

Written by Neal Kimberley, External Currency Analyst.
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