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Here’s what one forex trader with 11 years of experience – once told me:

“I rarely trade in December. Many traders are off on vacations; others have already made their profits for the year and are sitting tight, refusing to take any risk in the remaining weeks. As a result, the forex markets thin out, making it easier for big players to push the prices around. Trading a trendless market is very difficult, so come December, I scale way back.”

Well, another December is upon us, and once again I see my friend’s point. Over the past three weeks, the EURUSD has covered an incredible distance of 600 pips: from $1.2750 all the way up to $1.3350 (and counting). It's now just 2 cents away from its all-time high of two years ago.

Of course, after hitting that all-time high of $1.356 in December 2004, the EURUSD tumbled down for a whole year. Things are different this time around, say forex analysts. Maybe, but that's not the point. Regardless of whether or not the euro can hold its recent gains, one thing's for sure going forward: volatility. Remember how wildly the EURUSD swung last December? Some days it would easily cover 100+ pips in each direction, and this year should be no different.

Strong volatility is all the more reason to rely on Elliott wave analysis this time of year. Prices may swing more than normal, but wave patterns in the markets remain intact. Case in point: the EURUSD forecast our Currency Specialty Service published last night (Dec. 4). "Topping" was the key word we used, and for good reason: See how the ongoing rally shows only 3 waves so far?



As you know, an Elliott wave impulse has 5 waves. That's why, if our analysis is correct and wave 3 is indeed nearing completion, what should come next is a strong pullback in wave 4. Just how far could it drop? We do have a few Fibonacci-calculated targets in sight for the EURUSD, but since volatility will likely persist as the year-end approaches, this is a time for caution.

Click the EURUSD: Volatility, Anyone? header link above to check out a Elliott Wave Trading Software that provides low risk high reward trade identification and management.

Good day and good trading.

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