The EURUSD pair is under increased pressure as more restrictions in the Eurozone countries point to weak economic growth in the fourth quarter. Ever since it reached 1.20 during the summer, the pair traded with a bullish tone.
It remained bid on each and every dip. However, from an Elliott Wave point of view, all the waves that followed after the 1.20 level are corrective and not impulsive. As such, the pair is on track to form an elongated flat, a pattern with an impulsive wave long enough to reach below 1.15-1.14 area.
Pressure Builds on the ECB
The ECB tomorrow is expected to do nothing. The market’s consensus is that the ECB will indeed ease the monetary policy at the meeting that follows, the one in December.
But the COVID-19 advances in the Eurozone may lead to the ECB to react sooner than the market expects. France announced yesterday evening that it is considering a 1-month long lockdown. Germany announced today that it considers closing bars and restaurants for a month. Italy and Spain are under curfew, with bars and restaurants closed in various regions. Belgium has the highest infection rate in the Eurozone, and the list can continue.
Faced with such adverse conditions and with the imminent lockdowns, the ECB must downgrade its forecast for the last quarter. Moreover, the lack of economic growth may push further pressure on inflation – another reason why the ECB may surprise tomorrow.
EURUSD Bearish Elongated Flat Pattern
The EURUSD daily chart shows the price action since the 1.20 level. An elongated flat has the impulsive wave, the c-wave, much longer than the previous b-wave. In fact, it often goes beyond 161.8% of the b-wave. If that is the case, the EURUSD bears may want to short at market with a stop at 1.1850 and a target below 1.1450. On the flip side, a move back above 1.1850 after the ECB puts pressure on the 1.20.