And why now may not be the best time to bet on the greenback
Editor's note: You'll find a text version of this story below the video.
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On March 4, we spoke with Jim Martens, our Chief Currency Strategist. His Currency Pro Service is participating in our Pro Services Open House, a free week-long event that starts next Tuesday at elliottwave.com.
Elliott Wave International: Jim, it's a good time to talk about currencies, because the euro has just touched an 11-year low against the dollar. Did you ever think you'd live to see this day?
Jim Martens: Did I ever think I'd live to see this moment... Well, back in mid-2011, when EURUSD was trading near $1.50, we started talking about the upcoming retest of $1.1876, the 2010 low. We were convinced that the rally from that level was a correction -- so EURUSD would ultimately fall back to it. It took a while to get there because what followed was a wide-ranging sideways consolidation in EURUSD -- a triangle, in Elliott wave terms, an overlapping pattern labeled ABCDE that you see on this chart:
That triangle ended in May 2014 with EURUSD almost hitting $1.40. From that point we had been expecting a move below $1.1876 -- and we had lower targets, as well. Most of them have been hit, and the interesting thing is that now, all of a sudden, the idea of the dollar/euro parity is becoming popular. Someone at Goldman recently talked about parity by the end of 2017.
Elliott Wave International: Do you think we'll see parity?
Jim Martens: Well, in 2008-2009, we spotted a three-wave rally in EURUSD from 2000 to 2009 -- and we classified it as a correction. That, again, suggests that the euro will eventually revisit the lows we saw back in 2000:
But maybe not just yet. The current timing of the "parity" talk in the media is key. It's interesting that we see it now, after a huge decline. This is very typical! At major turning points, sentiment is supposed to be extreme. There is a reason why extreme sentiment signals a turning point: First the trend gets popular, then it becomes too popular, then there is no one left to buy (or sell).
But the markets are doing what they are supposed to be doing: inflicting the most pain on the most number of people. The majority always gets caught on the wrong side at big reversals. Always. For me, the news of the public piling into a trend is another snapshot of the market sentiment. That's useful information. Markets fool the most number of people at the most unexpected moments, but by tracking sentiment -- and the news -- you can prepare yourself.
The key is, just because the environment is right for a turn doesn't mean there is evidence of the turn. Wave analysis has built-in indicators that give you that evidence, and you have to wait until you see it -- before you act.
What separates Elliott wave fans from the rest of the public is that the public has no basis for determining when the trend may be over. In fact, the longer the trend continues, the more people join in -- and the more committed they become. But right now is not the time to stay committed to your EURUSD shorts.
Elliott Wave International: Thank you for the insights, Jim.
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This article was syndicated by Elliott Wave International and was originally published under the headline Market insight: U.S. Dollar at 11-Year High Against Euro. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.