The Euro's rally in recent weeks has reached an area of possible reversal. Here we examine the prospects for a resumed decline in Euro futures and the Invesco CurrencyShares Euro Currency Trust (symbol FXE).
As we track the progress of an Elliott wave count for FXE, the biggest question is whether the corrective structure of the past four years is complete yet.
We are treating the up-down-up structure that began in January 2017 as wave (iv) in what should be a five-wave (i)-(ii)-(iii)-(iv)-(v) downward sequence. Price has shown some initial response to resistance near 116.51, but a test of the higher 1x1 resistance level at 120.83 is still possible.
If Euro bears succeed in producing a minor lower high near the current area, then supports to watch during the remainder of 2021 would include 108.40, 106.74 and 104.62. Even 98.50 could be a stretch target this year, perhaps coinciding with the low points in the 39-week and 84-week dominant cycles shown on the chart.
Eventually, we expect price to break beneath the 2020 low, although it need not extend very far beneath that level. A bigger-picture target support at 93.00 is worth watching.
When the five-wave decline is eventually complete, it could mark a very long-term low for the Euro. That event might be in store sometime in 2023 or later.
Keep in mind, it's not yet confirmed that the small upward move of recent weeks is truly a retrace forming a lower high. Euro bears hope to see some acceleration downward from the 113.52 area to serve as confirmation.
The Euro futures chart below shows an alternative scenario in which wave [iv] isn't yet finished.
If price manages to reach above the January 2021 high, our first inclination would be to treat it as the final wave 'v' of (c) that completes wave [iv]. Likely resistance targets in that case sit between 1.2381 and 1.2431, with an additional stretch target at 1.2558.
Note the study near the top of the futures chart that tracks progress according to detected cycles, and also the Lomb periodogram at the bottom of the chart that detects cycles using a different method. Both studies suggest that price is nearing a local high, but that it could reach a bit higher.
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