We have seen a very strong two day reverse on the USD gains.

The price on the index currently sits at the .618 retracement so much lower and the old bottom may be eclipsed whereas a turn at current levels would be typical of a 1-2 in Elliott Wave terms.

If we make new lows on the index I would expect another sudden reversal back up. We may find the market choppy and volatile for the rest of the week until we settle this trend change.

Candle patterns that really matter

In my trading I love to analyze based on Elliott Wave. However I rarely make a trade unless I also get a candle pattern to fit into my model. In fact, with a strong candle pattern I often take the trade even if I think it doesn’t match my EW count the way I would be most comfortable.

Here are some observations on the 4 hour EUR/USD chart. The most recent tradable candle foretold of the quick rise today where most inexperienced traders might of been looking only for sell opportunities.

I think this is the correction necessary prior to the second force drop. The next move should be a drop but the overall correction may not be over yet.

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Being an Elliottician I am cautious to always look for more than one potential wave structure and count. Elliott is a good tool and ultimately helps greatly however I believe one must be very careful at not being attached to any one expected outcome.

Here are two (and I’m sure there are many other possibilities) potential wave counts on the EUR/USD.

I think the key level to watch is for a break below 1.4682

Here’s a view of the USD Index on a 4 hour chart. The break is very impulsive looking and should top out in a nice 5 wave pattern. (and I think it’s not quite done yet)

Then the form of the pull-back would idealy be in 3 waves and then a launch back into 5 waves up.

The most likely in the short term is a wave 4 and 5 over the next two days. This equates to the same on the EUR/USD only reversed.

I posted earlier that the last top could give way to a drop below the current trend-line and that it could be significant.

Volatility has returned to the EUR/USD. This in itself does not guarantee a turn however it comes at the end of a long trend. A rebound and new low could now define the trend.

The pair made one more top.

Now a break below the trend-line would be significant.

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New highs are possible on the EUR/USD.

The reverse from there is strong and should be at least a temporary top.