By Vadim Pokhlebkin

It's not often that you see the euro/dollar exchange rate move 100 pips in the after-hours trading. That's what makes the EUR/USD rally on Monday evening (April 9) so special.

Normally, moves like that are associated with a news release, or a sideways trading range breakout, or both. Not this time. At around 8 PM Eastern on Monday – when European forex traders were already asleep, their New York counterparts were browsing appetizer menus, and Tokyo trading desks were finishing their first pot of coffee – the EUR/USD took off, rallied all night, and by 11 AM Eastern on Tuesday, climbed its way to a new two-year high.

Why? Well, unless you consider the proverbial speculation that "the European Central Bank will lift borrowing costs as soon as this week" good enough reason... No, I don't either. Speculation about the ECB's next rate hike is nothing new, and it certainly doesn’t explain an out-of-the-blue rally during the hours when most forex traders are off-duty.

As you can imagine, there is an Elliott wave explanation for Monday night's rally. At 7 PM Eastern, about an hour before the EUR/USD took off, our Currency Specialty Service sent this intraday update to subscribers:

19:05 ET/23:05 GMT
[EURUSD] Last Price: 1.3354. The decline from 1.3440 is likely to continue, but a larger corrective bounce is expected before it does. A push into the 1.3390-1.3410 area is likely, with the top of the bounce near the center of the range…

What prompted that forecast was the larger Elliott wave structure. Under our operative count, last Thursday's (April 5) spike in the EUR/USD was wave 5. So the decline since then could only be A wave of an A-B-C correction. And since wave A's internal structure looked complete on Monday evening, a rally in wave B was a logical expectation.

(Editor's Note: Subsequent market action has made it clear that the April 9 rally was not a wave b, but something even stronger. Labels in our Currency Specialty Service have been adjusted accordingly. For info on subscribing to this service, click here.)

Obviously, the next wave in the sequence is C. Time will tell if it materializes, but here's what's interesting. Our Short Term Update pointed out on Monday evening that the ratio of bulls vs. bears in the Dollar Index is scraping the bottom:

As you can see, dollar bulls are few and far between these days, and "buy the euro" is the prevailing market sentiment. One-sided sentiment is never a guarantee of a market turnaround, but notice how consistently the peaks and valleys in the Daily Sentiment Index have coincided with peaks and valleys in the Dollar Index lately