We’re going to double up on our post today to give you both an analysis of the EUR/USD but also a lesson in Elliott Wave analysis in real time.

For those that just want the analysis - look for potential continued upward movement. However, keep analyzing in shorter time frames to check for a failed 5th wave. Once the currency tops, look for a nice “roller coaster” ride down.

Okay - for those that want to know a little more about wave counting. From the bottom of our chart, we have a nice movement up. You can manually count the waves and they appear to be pretty straighforward.

Is this an Impulse wave? Well, there are certain rules and guidelines to follow for impulse waves. Although I could keep naming them off, here’s what we look for just by eye-balling the chart.

1) Does Wave 2 cross over the beginning of Wave 1? No.
2) Does Wave 4 cross into the area of Wave 1. Again, just by “eye balling” it, it is very, VERY close but it looks like it doesn’t. Even if it did, it appears to only be by a very small amount. We’d have to check the actually prices to get a final answers (but here’s when you have to consider breaking some of the rules).
3) Wave 3 cannot be the shortest wave. It isn’t.
4) Is there alternation? Alternation refers to the corrective waves (Wave 2 and 4). If wave 2 is long and drawn out, wave 4 should be shorter. It can work the other way - if wave 2 is short and steep, then wave 4 should be longer and drawn out.

Now, the thing you must watch for is a potential “failed” or truncated 5th. That means, instead of Wave 5 moving up past the high of wave 3, it doesn’t pass it and starts heading down.

IF we’re looking at this chart in real time and all of a sudden it started moving down from the end point of this screen capture, then that would be a truncated 5th because it didn’t go higher than Wave 3.

So - the question now is - how do you determine if this is a truncated 5th? Great question. It’s impossible to call at this point, however, study and break down the formation of the unfolding Wave 5 in various time frames and that may help give you a clue to what may unfold.

What do we think? - Well, at this point, it seems like Wave 5 still has some legs to it and will move up. However, we’ll watch this unfold real closely and if we were to trade this, we’d definitely keep the stops tight.

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