by Vadim Pokhlebkin
22 August 2011

from ElliottWave Website

 

 

"Triangles appear to reflect a balance of forces"

Frost & Prechter's Elliott Wave Principle

 

Every time a new wave of the financial crisis thunders over us, it restarts the debate about which of the world currencies is "the safest."
 

Right now is no exception. So far the Swiss franc has emerged as a clear leader, after making new all-time highs against both the Euro and U.S. Dollar. Even so, the Euro and the buck have locked horns as rivals for a while, and thus far neither one is giving up its turf.

 

This is what a daily EUR/USD chart looks like today:

 

 

 

As you can see, since early summer, the EUR/USD has gone nowhere but sideways.

 

In the media, the explanations you read boil down to this: Yes, Europe is in a sovereign debt crisis, but America has a debt problem of its own. But to an Elliottician, that's not what jumps out from this chart.

See how the summer's multi-week trading range is bound by converging trendlines? That's an Elliott wave pattern called "contracting triangle." They are sideways, overlapping moves labeled ABCDE, where each leg further subdivides into three legs of its own.

But look past the technical analysis talk; here's the most important thing about contracting triangles, from Frost & Prechter's Elliott Wave Principle:

"Triangles appear to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. Despite their sideways appearance, all triangles... effect a net retracement of the preceding wave at wave e's end."

Put differently, it says:

"All triangles end with a bang..."

The only question is, which direction will the "bang" take now - up or down?