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As many of you who visit my blog; you know I love Elliott wave Theory. One of my favourite aspects of the theory is the Ending Diagonal. In other technical disciplines it is known as the ‘Wedge’, ‘Triple Top/Bottom’ and ‘Diagonal Triangle’.
The USD pairs may be developing Ending Diagonal at this time so I will focus on this aspect of technical analysis over the coming days.
Diagonals form because of the push and pull of the Bears and Bulls fighting it out at critical turning points. These waves form a pictorial view of the battle between these colliding forces. So when the diagonal plays out, marginal new highs and lows are rejected suddenly and with great volume.
Here is a classic Elliott Wave Ending Diagonal formation that happened on the EUR/USD last year. Remember that all patterns are fractal and can form at any degree on any time frame. They are simply easier to see on longer time periods.
Firstly; Diagonals can also be “Leading Diagonals”, so be careful not to mistake them as they will break to the opposite direction that you are expecting.
Ending Diagonals form at the end of long strong moves. Typically at the end of wave 3’s and C’s. AND also at the end of wave 5’s to form a very long term reversal.
Note: This Diagonal ended a wave three, reversed to the technical target of where it started and then was followed by a wave 4 that gave way to a “Terminal wave 5 (which was also a diagonal, just not as pretty). The result was a very tradable opportunity for a sell position on this pair.
I will follow up with potential formations on the current USD Pairs in the coming blog entries over the next few hours and days.