What Do Wave Charts Say About the Euro?
Currencies / Euro Oct 25, 2011 - 01:47 AM GMTBy: Glenn_Neely
This article is Part 1 of a 3-part interview series with Glenn Neely, founder and president of NEoWave Institute. In these 3 interviews, conducted by blogger Bud Fox, Glenn Neely looks ahead at 3 specific trading markets (Euro, Gold, and Treasuries) through the lens of Wave structure and explores what Wave theory tells us about the next 5-10 years.
Bud: This is Bud Fox, author of www.GreedAndMoney.com, a blog that specializes in US equity index trading. Since everything is intertwined in the trading world today, and since much of the recent activity in the stock market is focused on what’s happening in Europe, I have a few questions for you about the euro currency. From a Wave structure standpoint, can you give some insight on what the euro is probably going to do and what that might mean for the future of the euro? For example, what are your thoughts about the near or intermediate future of the euro, and whether current problems can be resolved by allowing Greece and other countries to default and potentially form a stronger currency?
Glenn: Long-term wave charts, as well as monthly wave charts on the euro, indicate that we’re in a very large formation, which started at roughly early 2002, that appears to be a five-Wave move, but in this case it’s what I call a terminal five-Wave move. That means it’s the very last advance in the euro before a really long, large bear market begins.
This has been my assumption and published opinion in this market for several years now. And despite recent market activity, it still appears to make the most sense structurally. We’re within probably a few months of finishing Wave 4 of that pattern on the downside. This would, of course, indicate one final advance back toward the highs of 2007 and 2008.
As things stand right now, it appears that the euro, in relation to the US dollar, will be going down for the next three to six months. It may reach down into the 1.3 area and eventually will go back all the way to 1.6 or maybe 1.7, but it shouldn’t go any higher than that. Once that final advance completes, that should be the end of the bull market in the euro.
Why would it be going up after all this gloom and doom? I’m not really sure. A lot of times Wave theory implies things that logically don’t make sense. They don’t fit the fundamentals, such as the situation with gold, which I’m sure we’ll get into later.
The news on gold has been really bullish. They’re talking about printing currency. The government is going wild and not controlling the value of the dollar. Then all of a sudden the value of gold drops $400 in a matter of a few weeks. That didn’t make any sense to most people.
The same kind of thing could happen with the euro. It’s going to go down and sideways for a while, synchronizing somewhere with the fundamentals but then starting a big rally because there are too many people expecting things to get really bad, and markets have a perverse way of doing the opposite of what the majority believes.
After they’ve all been burned on that assumption, maybe the market will finally be ready for a very prolonged bear market. I have to assume that if that happens, the possible demise of the euro could take place.
It could mean one of two things. Either the US dollar will go up a great deal in value and the euro will go down a great deal, or they’ll both move in opposite directions severely. I’m not sure which one of those is the answer. As far as specific questions relating to the policies and politics in Europe and how that’s going to pan out, I just have no idea.
Bud: What do you predict the timeframe will be for this prolonged bear market that will follow three to six months after the final rally of the euro?
Glenn: We first have to let the decline take place, which will last three to six months and maybe even longer. Then the final rally could be very powerful. It would appear to be coming out of a contracting triangle, which typically produces fast market action.
Based on past formations, the previous first wave lasted about three years, and the third wave lasted about two years. The minimum would be at least a year. Maximum would probably be three years. It’s somewhere in that ballpark. Then that would be the end of the euro bull market that started way back in 2002 and even further back in time than that.
From there, the bear market could probably last a decade or more, based on a very large terminal formation that would not only produce a violent collapse in the price of the euro eventually, but would indicate that we’re at the end of a major long-term uptrend.
I assume this could imply prolonged deterioration in Europe and its economy, the value of their currency and so forth. It would be a very prolonged bear market in the value of the euro compared to the dollar. Part 2 of the Glenn Neely interview will focus on GOLD, and will look ahead at the near and long-term Gold market, through the lens of NEoWave theory.
About the author
Founder of NEoWave Institute, Glenn Neely is internationally regarded as the premier Wave analyst. He has devoted more than 25 years to mastering Wave theory, stock market predictions, and successful trading. In 1990, Neely published his advanced Wave analysis process in his classic book, Mastering Elliott Wave. In the following decades, Neely continued to evolve Wave theory to make it objective, practical, and consistently accurate. This evolution produced NEoWave technology – a precise, step-by-step assessment of market structure, which results in low-risk, high-profit trading and investing. See for yourself: Subscribe to NEoWave’s 2-week Trial Service. Learn more Glenn Neely and NEoWave Trading and Forecasting services at www.NEoWave.com.
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