EUR/USD Medium Term Outlook

As a whole, there is no change in the wave count since the last update. The chart shows the movement started from 0.8563 (February 2001). As I wrote many times I think that the previous downtrend ended at this level (with a reversal triangle) and started the current very strong up-move in favor of the euro. It is obvious that the first wave from the up-move ended at 1.3664 (December 2004), followed by a corrective wave down to 1.1639 (November 2005) and subsequent resuming of the up-move i.e. we have three waves till now for the movement started from 0.8563. In my opinion all of them are corrective in nature This and the fact that I count the rise started from 0.8563 as wave [C] make me think that the movement started from 2001 is a giant terminal impulse (ending diagonal) with extended first wave. Wave 3 should be already over at 1.4966 (November 2007) and we should be currently in wave 4 with minimum requirement overlapping of wave 1 (1.3664) and more natural target 1.3300 – 50 % retracement of wave 3, followed by another strong rise in wave 5 with target 1.5000. With an eye on the fact that wave 2 took 11 month, it is logical the current wave 4 to take 6-7 month i.e. till the middle of the year. The interesting here is the fact that if the presented count proves to be correct, we should see a complete retrace of the potential terminal impulse once it is over (this should happen in the end of the year earliest). So the presented analysis suggests a reversal of the long term trend from levels around 1.5000 with a sharp sell-off below 0.8563 for 3-4 years. Argument in favor of such an idea is the fact that terminal impulses are always completely retraced for a less time than they took to form and most of the times this happens for 50 % of the time needed to develop such a pattern.

Karoll Financial House

This analysis has only informational and educational purpose and does not represent a proposal for buying or selling currency contracts. This report will be updated every Monday, Wednesday and Friday on the next schedule:

• Daily EUR/USD Elliott Wave Outlook - Monday
• Daily GBP/USD Elliott Wave Outlook - Wednesday
• Daily USD/JPY Elliott Wave Outlook - Friday

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