EURUSD is trading above 1.0800 for the first time since November after the parties expected to form the new German government agreed to loosen the country’s debt restrictions. The “debt brake removal” could potentially enable over €1 trillion in defense and infrastructure spending over the next decade. Soon-to-be chancellor Friedrich Merz hopes the move would help reignite Germany’s stagnant economy and prevent a further rise in the polls for the far-right AfD. A potential side-effect is, of course, inflation, which removes the pressure for the ECB to keep aggressively cutting interest rates. Hence the 440-pip surge in EURUSD this week.
The problem is that while such after-the-fact explanations are good for purely academic purposes, they are of little use to traders. By the time the news arrives, it is usually too late to take advantage of the price move it has triggered. By the time we first read about German politicians’ debt reform decision yesterday, EURUSD was already trading near 1.0700.
The good news is that we didn’t have to wait for any news to turn bullish on the European currency. One of the wonders of Elliott Wave analysis is that it often puts traders ahead of market-moving events and external information. The patterns it helps us to identify give us a hint in advance. In this case, months in advance.
Similar Elliott Wave setups occur in the crypto, commodity and stock markets, as well. Our Elliott Wave Video Course can teach you how to recognize them yourself!
The chart above was included in our EW Pro analysis of EURUSD, published before the market opened on Monday, January 13th. After having examined the weekly and daily charts, we concluded that it shows an ending diagonal, marked 1-2-3-4-5. This is a reversal pattern, so instead of relying on the late-2024 selloff to continue, we thought it was time for the bulls to return.
And return they did, but most new beginnings are difficult and this one was no exception. Worries about Trump’s new trade war and his public conflict with Zelensky limited the pair’s rise to the resistance near 1.0500. By the time we published our March 3rd Pro analysis before the start of this week’s session, however, the stage looked set for a notable surge. As long as 1.0284 was intact, it made sense to expect a notable rally in wave iii) of (iii) of 3, following a sequence of first and second waves from the bottom at 1.0178.
The bulls took the wheel right away on Monday to lift EURUSD to over 1.0820 so far, up more than 440 pips since Friday’s close. 1.0284 was never threatened. Like most ordinary people, we had no inside knowledge about how the German government negotiations are going, and Trump’s behavior is next to totally unpredictable. Macro analysis is too complex with too many moving parts to be of any real use in the Forex market. So we cannot imagine any other way to predict the Euro’s sharp surge besides Elliott Wave analysis. It not only pointed us in the right direction, but also helped us to identify the key level to watch, in case we’re wrong, thereby providing a very attractive risk/reward trading setup.
In our Elliott Wave PRO subscriptions we provide analyses of Bitcoin, Gold, Crude Oil, EURUSD, USDCAD, USDJPY and the S&P 500 every Sunday and Wednesday! Check them out now!
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