The EURUSD is on a tear higher, almost reaching 1.18 two days ago after seven consecutive daily higher highs. The market sells the USD across the board, but the EURUSD advanced the most.
After the EU Summit in July, Euro benefited from strong flows. On the one hand, many investors see Europe as better-handling the coronavirus crisis. The numbers of corona-related deaths and infections continue to decline in Europe.
On the other hand, the European Union’s deal sent a strong signal to financial markets. After all, European fiscal integration just took a leap forward.
Fed Announced the Extension of Its Lending Facilities
But the rise of the EURUSD is not only about the Euro. Yesterday the Fed in the United States announced that it extends its lending facilities by three months – until the end of December.
The message, one day ahead of the FOMC Meeting, weakened the USD further, albeit not against the EUR. AUDUSD, GBPUSD rose further, while the EUR corrected on crosses.
With a few hours until the FOMC Meeting, the EURUSD sits at crossroads. 1.20 feels so close, but a correction is likely due before.
EURUSD Correction Expected
Since the bounce from the 1.08 area, the EURUSD did not look back anymore. From an Elliott Waves perspective, the pair appears to form a double combination poised to respect the rising channel.
A double combination has two parts – two simple corrections connected by an intervening wave. The x-wave. At the currency 1.1750, the EURUSD pair already started the second part of the complex correction – a triangle.
With the a-wave of the triangle already completed, the b-wave should reach the opposite side of the channel. It can do that by dipping to 1.15 area in the next two weeks or forming a horizontal correction in the next four weeks.
Considering the Fed is due next, the likelihood is that the EURUSD will retrace from the current levels to meet the lower edge of the rising channel. To trade it, place a stop-loss at 1.19 with a target at 1.15. While not a great risk-reward ratio, it offers the possibility to load again on the long side once the price reaches the lower edge of the channel.