Intriduction
Several beginners in their letters asked to explain why I prefer the scenario v.3 for the European currencies [Annual-06 ]. In order to understand my point of view let’s analyse the trend movement against the dollar that the European currencies have been demonstrating since the end of 2005.
1. General view of the trend movement against the dollar In January 2006 my explanation why the dollar’s decline will last at least until May 2007 was published (см. Annual-06). That’s why since October 2006 when a significant extremum formed on a weekly chart I have always wondered if the long-term trend against the dollar had been over or not. After the price passes control points and the current wave picture is analysed the answer to this question is at times given in Wave Analysis.
At the end of July (and for the CHF at the beginning of August) the main dollar’s pairs formed another extremum. If we consider the current trend on a weekly time frame it will be easy to single out 9 main waves (see the pictures 1..3 below). Each of the action waves of this 9-wave trend (1, 3, 5, 7, 9) represents some variation of a zigzag (single or double), and only some of them with certain strains may be treated as an impulse (or wedge) in whole.
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Pic. 1. General view of the uptrend EUR/USD
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Pic. 2. Gemeral view of the uptrend GBP/USD.
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Pic. 3. General view of the downtrend USD/CHF.
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Such number of the main waves inside the trend is typical:
- either for completed impulse structures,
- or for incomplete corrections.
That’s why let’s analyse this trend not only from the both main point of views but from the intermediate one as well.
2. Completed impulse?At first let’s analyse the possible completed impulse structure (see pictures 4..6, below).
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Pic. 4. Completed upward impulse (5) of [A] of the euro.
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The current uptrend of the euro may be interpreted as a rather well-shaped and proportional impulse (5) of [A] with minimal strains, without breaking the rules, and alternation guidelines between corrective waves 2 and 4 will be followed. Its final wave 5 of (5) is represented in the shape of regular contracting diagonal triangle, though rather large comparatively to the whole size of the impulse (5).
The last-mentioned fact is the only alerting, but not a prohibitive factor.
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Pic. 5. Completed upward impulse (5) of [A] of the pound.
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For the GBP this upward structure also may be interpreted as a similar global impulse (5) of [A] with little strains. But its ending diagonal triangle 5 of (5) would be with the shortest third wave (wave 7 in the picture 2 is shorter than the wave 9 by more than a figure). And the second wave 2 of (5) of this “impulse” would be a horizontal triangle (wave 2 in the pictures 2 and 5). Unfortunately such breaches are exceptions from the rule.
Of course we may carry over the beginning of the wave 4 of (5) of the GBP to the point 4? in the picture 2, but in this case the ending diagonal triangle 5 of (5) would be without overlap of its main waves [iv] and , which also happens not so often (picture 5). At the same time the ending wave 5 of (5) in the shape of diagonal triangle would fit the definition of the extension in the impulse at all parameters. But an extension in the shape of a diagonal triangle without overlapped waves and [iv] is rather an exoticism than a norm.
Note. For further study of this question it is logically to suppose that developing of a fifth wave extension in the shape of a diagonal triangle in the impulse may result in minimization or complete liquidation of a common deep overlap between the fourth and first waves of the diagonal triangle.
That’s why the supposed horizontal triangle in the second wave of the impulse as well as the exotic in size and parameters diagonal triangle cast some doubt on such variant of wave counting.
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Pic. 6. Completed downward impulse (5) of [A] of the CHF.
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In case with the CHF the current overlaps between main waves of the downtrend on the contrary are so big that the only way to treat this trend as a global completed impulse is in counting its fourth wave 4 of (5) of [A] as a horizontal triangle. But the duration of this triangle is several times more than the duration of the wave 2 of (5), which is an alerting factor.
Such impulse hardly can be named well-shaped. Besides, truncation [5] of 3 of (5) and, rather corrective, than impulsive structure of its wave 5 of (5), especially in its ending part, are the very strains that mar the whole picture. The fact that the wave (5) of [A] though is not a truncation, strictly speaking, but failed to pass over the top of the wave B of (4) doesn’t add any optimism as well.
Thus, from the three variants of counting discussed above only the impulse in the EUR/USD can be considered to be a full-fledged impulse with minimum strains. Exotic combinations and exceptions from the rules in other currency pairs make such variants pale into insignificance.
Besides as I mentioned many times in my articles the USD currency pairs at the same period of time tend if not to copy then at least to reiterate in exterior form and interior structure common patterns and wave constructions, though with special features. It is this characterisitic that helps sometimes to understand a complicated structure of one pair with the help of another or to find a scenario acceptable for all the pairs.
That’s why it is unlikely that a large corrective wave is forming in the GBP and CHF when a regular impulse is developing in the EUR. But precisely such picture we have been watching on the charts since the end of 2005.
In this case following the majority logic principle (2 of 3), we may suppose that the global trend against the dollar since the end of 2005 is not a completed impulse structure, i.e. the dollar’s decline most likely will continue in corrective style.
This supposition can be disaproved only in case of such dollar’s strengthening, when the price at first fixes beyond the trendline of the channel and then breakes the confirming level (i.e. if it falls below the ending of the wave 4 of (5) of [A] in the pictures 1 and 2; for the euro it’s the 1.2482 mark, for the pound it is 1.8089).
3. Completed correction?And now let’s consider the intermidiate almost improbable variant, i.e. the possibility that in July-August the corrective wave (B) of [B] ended, despite 9 main waves of this trend.
In principle, any significant extremum of the current trend could be treated as a possible ending of the wave (B) of [B]. Many wave analysts, in fact, did so in 2006-2007. Streactly speaking there are no hard and fast rules in this respect except wave patterns described in literature and common sense. That’s why many wave analysts shuffle zigzags, included in such trend in variety of exotic ways trying to get a sensible wave picture.
Some examples of such shuffling you may see in the pictures 7..9 below, when the structure under consideration is represented in the form of a completed correction. Examples are given only for the pair EUR/USD, as the picture for the other pairs is practically identical. Action waves are shown with the red lines, reaction waves are shown with the green lines.
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Pic. 7. Completed upward correction (B) of [B]. Alternative 1.
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The disadvantages of this variant of counting are the artificial «pulling apart» of the local correction in the central part of the chart into various components (waves X, [w] of Y, [x] of Y), and the shortest wave Y.
As an advantage it is necessary to mention approximate equality in the length/duration of peer to peer corrections.
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Pic. 8. Completed upward correction (B) of [B]. Alternative 2.
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In the next variant of counting the local correction in the central part of the chart is presented as a whole. But a sharp difference in the length and duration of the peer to peer corrections of this triple zigzag strikes the eye at once, which may be considered a serious disadvantage.
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Pic. 9. Completed downward correction (B) of [B]. Alternative 3.
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A more proportional variant of counting implies that that wave (B) has taken the form of a double zigzag. But the zigzag itself is lacking external symmetry, as it consists of double zigzag W and triple zigzag Y [see scenario v.2 in Annual-07(2)].
In the context of Wave Principle variants considered above have right to exist, and there are no grounds to wicker them. However due to the mutual disproportion or exoticism of the components as well as in consequence of the dissemetry of the patterns and 9 main waves I’m in no haste to bring them to the forefront without acute need.
4. Incompleted correction For the dessert let’s consider the last and the most probable from my point of view variant — incompleted correction.
4.1. Lyrical deviation
Why is it the most probable? To the brief negative conclusions in the previous sections I can add that any wave pattern tends to be proportional and to some extent symmetrical. I suppose that zigzag nonlevel corrections if not conform at least try to follow some regularities in their forming, giving some hint to a wave analyst. Examples of proportion of the main waves of a big triple zigzag (A) of [B] are given below for each of the currency pairs under consideration (pictures 10..12, below).
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Pic. 10. Correlation of the main waves of the triple zigzag (A) of [B] of the euro.
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Note. Symbol T in the pictures from 10 and further denotes the duration of a wave (T-Time). I.e. T2 denotes the duration of the wave 2, Txx denotes the duration of the wave XX.
Please note the mutual proportion of the peer to peer corrections both in the length and duration. In the pictures 10..12 corrections may not coincide with the whole corrective wave pattern and include the ending part of the impulse structure, but they mark clearly the ending and the beginning of a straightlight continuous trend. As a result we get two equal rectangles of corrections of smaller degree and mutually proportional corrective waves X and XX.
Note. Equal rectangles insistently suggest common use of the notion «area of correction».
Everything that was mentioned above relates to the other two USD pairs — the GBP and CHF (see the pictures 11 and 12, below).
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Pic. 11. Correlations of the main waves of the triple zigzag (A) of [B] of the pound.
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Pic. 12. Correlations of the main waves of the triple zigzag (A) of [B] of the CHF.
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The number of main waves (11) for all the pairs under consideration on the given section of the chart only underlines the completion of this corrective pattern. Let’s try to apply such proportion to the main waves of our trend too.
4.2. Let’s project a zigzag correction
Having justly supposed that 9 main waves can mean incompletness of the corrective structure I’ll try to project schematically the general view of the supposed correction and its final objectives (pictures 13..18).
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Pic. 13. Incompleted upward correction (B) of [B] of the euro. Projectios.
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It is logically to take the largest in duration correction in the central section of the chart for the first correction of major level X. As a result we will get not only approximately equal in length (in overall height) and duration corrections of smaller degree [x]1 and [x]2, but also approximately equal in the length and duration double zigzags W and Y. Indirectly it proves that we are on the right way and we may expect that a triple zigzag (B) will continue to form.
In this case it is logically to suppose that the obtained proportions will be preserved and in the subsequent waves XX, Z and [x]3, projections of which are plotted on the picture 13.
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Pic. 14. Incompleted upward correction (B) of [B] of the euro. The survey picture.
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These were the reasons by which I was actuated publishing the scenario v.3 [see the picture 14 and Annual-07(2) ].
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Pic. 15. Incompleted upward correction (B) of [B] of the pound. Projections.
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We may observe the similar picture in case with the GBP. We also get approximately equal in the length (in total height) and duration corrections of the smaller degree [x]1 and [x]2, and approximately equal in the length and duration double zigzags W and Y. If we are right we may expect that the triple zigzag (B) will continue to form. By the way, the supposed horizontal triangle [x]1 in this case doesn’t raise any doubts, as it is on the «right» place.
In this case we may also suppose that the obtained proportions will be preserved in the subsequent waves XX, Z and [x]3, projections of which are plotted on the picture 15.
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Pic. 16. Incompleted upward correction (B) of [B] of the pound. The survey picture.
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These considerations were reflected in the scenario v.3 [refer to the picture 16 and Annual-07(2) ].
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Pic. 17. Incompleted downward correction (B) of [B] of the CHF. Projections.
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The CHF differs slightly from the previous currencies in the general wave picture, but in other respects, especially in the duration of alternate corrections and action waves, proportion is preserved.
The correction in the central part of the chart ([a] of X) should be correlated with the population of waves, which are not united by a single wave pattern: (x)-(y) of [d] + [e]. And the wave W should be correlated with the population of zigzags -[c] + (w) of [d].
As the supposed global pattern (B) is a double zigzag with a wave-link X in the form of a skewed triangle it is logically to suppose that the waves W and Y, as well as [x]1 and [x]3 are approximately equal in the length and duration.
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Pic. 18. Incompleted downward correction (B) of [B] of the CHF. The survey picture.
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These considerations are reflected in the scenario v.3-alt2 [refer to the picture 18 and Annual-07(2) ].
Conclusion
In conclusion it should be noted that if the preferred scenarios v.3 for the European currencies prove true then the whole global corrective pattern will consist of 11 main waves. I.e. after their ending we will be able to say with high probability that the corrective wave (B) of [B] is completed.
This is the ground of my preference of the scenario v.3 for the European currencies over other possible variants. But it doesn’t mean that it will be exactly so ;)
Addition d/d 30-31.08.07Wave flat XX, shown in the pictures 13..16 is only one of the possible variants for the wave XX. The continuation of the current up trend may lead in future to forming of an expanded horizontal correction (refer to the tables 3-1 and 3-2 of my book), for example, skewed or running triangle or triple three.
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Pic. 19. Wave counting of the daily chart of the EUR/USD. Variant 3-alt.
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Pic. 20. Wave counting of the daily chart of the GBP/USD. Variant 3-alt.
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Addition d/d 02.09.07The survey wave pictures of the currencies under consideration are given below, in which I try to make a long term schematic forecast in the form of a synchronous price movement. For convenience of comparison the currencies are divided into direct and reverse dollar pairs.
Direct dollar pairs
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Pic. 21. Possible projections of the EUR/USD. Variant 3.
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Pic. 22. Possible projections of the GBP/USD. Variant 3.
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The euro’s and pound’s rise on the back of the dollar’s decline has formed since the end of 2005 an impetuous upward pattern, supposedly a triple zigzag.
In this pattern the sections of the dollar’s rise (green lines), which are reactionary, corrective relative to the dominant price movement prove to be isolated centers of resistance to the prevailing trend.
Reverse dollar pairs
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Pic. 23. Possible projections of the USD/ CHF. Variant 3-alt2.
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Pic. 24. Possible projections USD/ JPY. Variant 2.
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Please note that in the JPY and CHF the sections of the dollar’s rise (heavy green lines), which are reactionary, corrective relative to the dominant price movement have formed a united corrective pattern of a higher degree.
In the CHF it is the wave-link X of (B) in the shape of a supposed skewed triangle that divides the large double zigzag into halves. And in the JPY it is the wave B of (B) of a supposed expanded wave flat.
Reference:
August 17, 2007 When using any part of the article for publication or analytical materials reference to the author and Alpari is obligatory.
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