EURUSD—Maybe it's a bat

Euro almost made it to 1.40, reaching a high of 1.3997 so far this morning.

I wanted to look at Euro in a different way since by most of my usual approaches—fib retracement, Elliott Wave, simple common sense—it's overdue for a correction but it doesn't seem to be yet happening.

One way to look at it is from the point of view of harmonic patterns. When I do so there are a couple of possibilities. One that would have the Euro bulls dancing the Macarena is the bat pattern. With this, the potential price for this last leg is 1.4771.

The bat pattern was described by Scott Carney in 2001. In a bearish market it's a "W" shape. Each point is labeled with a letter. In this case the top of the W is X, the bottom of the first leg is A, the second leg up is B, etc. For the Euro the first leg would be from 1.5144 to 1.1876. This is known as the XA leg (X=1.5144).

With harmonic patterns there are relationships for retracements that adhere to Fibonacci relationships. For the bat, the defining one is that the final point D, must be a .886 of the XA relationship. This is the 1.4771 I mentioned above or .886 of the move from 1.5144 to 1.1876. The point where B retraces to must be less than .618 of the XA leg and it's preferable it is between .382 and .5. Usually there is a 1.27 relationship of the CD to the AB calculation. Finally, there's a minimum 1.618 projection of the BC length.

Below is what this looks like for the Euro.










Do I believe this? Oh, I don't know. As I said above, common sense says the Euro should be correcting and I expect it will. But the point is, where? If it gets much above 1.4050, thus blowing those Elliott predictors away, then maybe this is where it will go. But I'll probably short at or before 1.4050.






© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

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