Euro spikes to defeat potential reversal pattern - or vaults into spider web?

The euro has spiked again and defeated the potential reversal pattern we noted earlier this week on the hourly charts. Here's one headline at Bloomberg: Dollar Slips to $1.41 per Euro as Economic Prospects Reduce Safety Demand. So having caused me that fit this morning (!), is the euro now in the clear to move higher? Well, not so fast ... The Fibonacci .786 retracement to the $1.45.04 spike in December 2008 is at $1.40.75, which the euro is testing today. If the euro, either on Monday or soon after, falls under today's lows, that can be the beginning of a Fibonacci reversal pattern called a Gartley. That's the "spider web" I refer to. There are other ways to assess where the euro goes from that level, but first it must go into a reversal pattern to be certain that this spike finishes the current rally.

We won't know of course until next week whether the euro goes into a reversal pattern. Readers here know that I've been tracking the euro for a while, looking for a potential reversal downward along with a commensurate move for the dollar to find support. I've been too early a couple of times in seeing a potential reversal in these currencies. At this point, if the euro doesn't get resistance from testing this .786 retracement, and if the dollar fails to find the key support we've described recently (use "US Dollar" label for prior posts on the dollar), then the paradigm really does shift in favor of a lot more weakness for the dollar and further movements up in the euro and related currencies against the dollar.

Today's low (so far anyway) in the Dollar Index is $79.30. The level that it must respect so far as the December 2008 swing low (important support) is concerned, is $77.69. Interestingly, the .618 retracement in the dollar to its early 2008 low of $70.70, is $77.92. So if the dollar is not wanting the symmetry target level (and 50% retracement level (often associated with "B" waves) of $80.15) that it already tested last week, and now the dollar wants to test a lower level, it can test that .618 retrace that is often associated in Elliott Wave analysis with a wave 2 retracement. This doesn't mean that the dollar "has to" get there. But it does allow for the interesting prospect that it could reach a wave 2 level without violating the December 2008 low, and leave open the possibility of a wave 3 up.

So, although the euro has spiked higher and the dollar has spiked lower than I may have expected based on their reactions earlier this week to the extremes of one week ago, neither one has reached such an extreme that they are beyond trend reversal points.