3 technical reasons to buy the EUR/USD

By:

on May 29, 2023

Updated: Aug 14, 2024

Listen

EUR/USD is bullish from an Elliott Waves theory perspective
The time element favors more upside
Fibonacci levels offer strong support

Follow Invezz on Telegram, Twitter, and Google News for instant updates >

With only three trading days remaining in the month, the EUR/USD holds above 1.07. Sure enough, it had traded with a bearish tone for several days, declining from above 1.10 to the current levels.

Are you looking for signals & alerts from pro-traders? Sign-up to Invezz Signals™ for FREE. Takes 2 mins.

To some, the current EUR/USD exchange rate is way too elevated.

Euro at 1.07 is massively overvalued. That's because 1.07 versus USD (white) is really something like 1.50 on a broad trade-weighted basis (orange) once you factor in how strong the Dollar is. There's many reasons for USD to be so strong, but those don't carry over to the Euro… pic.twitter.com/ojcG6nyJKC
— Robin Brooks (@robin_j_brooks) May 28, 2023

But a currency pair reflects the value of one currency in terms of another. If EUR/USD trades where it does, it is the result of supply and demand or the reflection of buyers’ and sellers’ position in the market.

It might very well be that the euro is overvalued. However, from a technical standpoint, one can build a bullish EUR/USD scenario at the current levels.

One Elliott Wave cycle appears to have completed

According to the Elliott Wave theory, a cycle is made of an impulsive and a corrective wave. More precisely, a five-wave structure followed by a three-wave one completes an Elliott cycle, and this is what one can see on the EUR/USD daily timeframe.

The market bottomed last October, when a massive rally started from below parity until the 1.10 area. That’s the impulsive wave. What followed is a classic a-b-c, a flat pattern, which appears to have ended or is about to end.

The time element favors more upside

One of the key factors when using the Elliott Waves theory is the time element. Equality in time for the impulsive and corrective waves often precedes a strong impulsive wave, an extended one.

It means that the EUR/USD should end a second wave (in red) around current levels before an extended third wave begins.

Fibonacci levels offer strong support

Finally, if one uses the Fibonacci retracement tool and measures the impulsive wave’s length, would notice that the 38.2% and 23.6% levels offered strong support for this market.

In other words, the flat pattern, or the a-b-c, appears to have a so-called “failure”, which is a strong sign of countertrend strength.

All in all, being short the EUR/USD here is risky. While fundamentally one can build a strong case against the euro, technically, this might be just the place where EUR/USD builds energy for another leg higher.

EUR USD Forex