The EUR/USD appears to be completing a fifth wave within a larger third wave move that originates from the November 26th/December 3rd 2009 double top. The formation of a 3-week falling wedge or ending diagonal, which often appears in the fifth wave position, further supports the beginning of a larger fourth wave correction. While speculators continue to add to an already record net short position against the euro (according to the latest CFTC IMM data), the formation of a daily RSI base (14-period) and bullish MACD divergence hint of an overdue recovery. Clearing falling wedge resistance (now at 1.3650) and a RSI bear trendline confirms the breakout and will first target 1.3739, where a confluence of Gann and Fibonacci retracements are clustered. The pattern's breakout target projects a move towards 1.4000, the vicinity of the previous fourth wave (a common Elliot wave target). If, however, the EUR/USD manages to close below 1.3486 (a key Fibonacci retracement of the March/December 2009 rebound), then 1.3444 (Friday's low) is likely to be retested. A weak test or a marginal breach of the newly formed 2010 low would offer another compelling (long) entry point.
