The wave pattern on the 4-hour chart for the EUR/USD pair has taken on a slightly different form. If we analyze the entire trend that began in September 2022, when the European currency fell to the 0.9530 level, it becomes clear that we are currently observing an upward wave sequence. However, within this section, it is challenging to distinguish higher-scale waves. In other words, there is no clear impulsive trend. We are seeing a constant alternation of three- and five-wave corrective structures. Even now, the market has not been able to form a clear three-wave downward pattern from the peak reached in July of last year. Initially, there was a wave down that covered the lows of previous waves, followed by a deep wave up, and now, for the seventh month in a row, something unclear is developing.
Since January 2024, I can only identify two a-b-c three-wave patterns with a reversal point on April 16. Therefore, the first thing to understand is that there is no clear trend right now. Once the current wave c completes, a new three-wave downward pattern could potentially start forming. The trend segment from April 16 may take on a five-wave form, but it would still be corrective. In such circumstances, I cannot believe in a prolonged rise of the euro.
Producer Prices Decline More Than Expected
The EUR/USD pair rose by 15 basis points on Tuesday. The amplitude of movements was again quite weak, but at least the report on producer prices in the U.S. managed to move the pair slightly. Producer prices in the U.S. decelerated year-over-year to 2.2%, while the market expected a slowdown from the current 2.6% to 2.3%. Thus, prices are slowing down faster than expected. I cannot say that tomorrow's inflation report will show a value below 2.9%, but today's market reaction has clearly shown us what to expect on Wednesday.
Tomorrow, the inflation report will be one of the most important in recent times. Especially now, when the market is expecting the FOMC to cut rates by 50 basis points in September, it is crucial to get an answer to the question: Are there real grounds for this, beyond the simple desire of the market? If inflation slows down below 2.9% tomorrow, demand for the U.S. dollar may fall much more significantly than it did today. In that case, wave c risks extending further, which is something I would prefer to avoid. However, unfortunately, U.S. statistics continue to do everything to cause the U.S. dollar to decline.
A higher-than-expected inflation figure above 2.9% could be the only factor supporting the dollar tomorrow. In that case, the likelihood of a 50 basis point FOMC rate cut in September will approach zero.
General Conclusions
Based on the analysis of EUR/USD, I conclude that the pair continues to form a series of corrective structures. From the current positions, the rise may continue within a five-wave corrective structure. However, a more likely scenario now is the formation of a downward wave d. It is also possible that a new downward (and also corrective) series of waves may form with targets below the 6th figure, especially if the upward a-b-c wave sequence remains three waves. There is still no clear trend, and the presumed wave d may have started forming from the 10th figure, where waves a and c achieved equality.
On a higher wave scale, it is also visible that the wave pattern is becoming more complex. We are likely to see an upward set of waves, but its length and structure are difficult to predict at this time.
Key Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to trade and are often subject to changes.
- If you are unsure of what is happening in the market, it is better not to enter.
- There is never 100% certainty in the direction of movement. Don't forget to use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
