The long and the short term in EUR/USD are performing just as expected. On the long term, the rally that began 12June2007 is very clearly an impulsive move and is currently working higher in wave five. Looking at the chart below you can see that wave two was a complex correction and wave four was a simple correction. That follows the Elliott Wave concept in the way of alternation. If wave two is simple then wave four should be complex and vice versa. That concept plays out perfectly here. Wave three extended very nicely in five waves and ended just a frogs hair above the 261.8% Fib Extension. And now here we are at the start of the new year as price is extending higher in large wave five. The large wave five began right on the 38.2% Fib Retracement of wave three; as is usually the case according to Elliott Wave concepts.

Looking to the short term now, wave one of (v) is complete and the wave two retracement is in play now. Currently price is being supported by the 38.2% Fib Retracement of wave one, so we should consolidate for a bit and then see price drop down to the 50.0% Fib Retacement of wave one; again as it usually does according to Elliott Wave rules. The way that waves one and two are forming, will also cause an inverse head and shoulders pattern which is a very typical formation when wave five begins.

Now for a trade setup: I'm looking to buy the 50.0% Fib Retracement of wave one which is at 1.4527. Stop Loss will be just below wave one at around 1.4300. The target for the trade will be the 161.8% Fib Extension of wave one which is 703 points.

As far as fundamentals go, the weaker US Dollar is keeping our economy afloat because foreign companies and buyers can get US goods at very cheap prices. The Fed has pretty much given the go-ahead for the USD to continue to go down.

So with technicals and fundamentals aligned, all there is to do is manage your EUR/USD longs and watch your bank account grow. -Happy Trading.

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