The wave pattern of the 4-hour chart for the EUR/USD instrument has changed. If we analyze the entire trend segment starting in September 2022, when the European currency fell to the mark of 0.9530, it turns out that we are inside an upward wave set. However, it isn't easy to distinguish even the larger-scale waves within this segment. In other words, there needs to be a clear impulse trend. We constantly observe an alternation of three and five-wave corrective structures. Even now, the market has not formed a clear three-wave downward structure from the peak reached in July last year. First, there was a wave down that overlapped the lows of previous waves, then a deep wave up, and now, for the seventh month in a row, something unclear is being formed.
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 current trend. After completing the current wave c, a new three-wave downward pattern may form. The trend segment from April 16 can take on a five-wave form, but it will still be corrective. In such circumstances, I cannot believe in the prolonged growth of the euro currency.
A pivot point may pull the euro down. The EUR/USD rate decreased by 25 basis points on Thursday but may lose a bit more by the end of the day. Just a few hours ago, the ECB concluded its July meeting, which likely caused the decline in demand for the euro currency. Any decision made by the ECB caused a decrease in the European currency. Most likely, the decline in the instrument is not correlated with the ECB meeting; it is merely the market's reaction to this event. For example, some market participants started to take profits from their purchases, which caused a slight decline in the instrument.
The ECB did not make any significant decisions, and the accompanying statement contained the same points that Christine Lagarde and other policymakers have repeatedly mentioned. The ECB still believes that inflation will remain above the target level in 2024 and for some part of 2025. Nevertheless, the progress in reducing inflation is sufficient to move towards a more "dovish" policy. The ECB indicated that the current level of rates remains "restrictive" but is already exerting less pressure on financial conditions. In other words, the ECB is deliberately reducing pressure on the economy and inflation, as the issue of inflation is no longer as acute as before. The ECB confirmed that the decision on rates will be made on a meeting-by-meeting basis and will be based on all received information. There is no specific plan for rates at this time.
Overall conclusions.
Based on the analysis of EUR/USD, the instrument has moved to form a series of corrective structures. From the current positions, the increase may continue within a three-wave or five-wave corrective structure. Therefore, it is currently impossible to clearly identify the targets for increasing the European currency. The instrument may reach the 1.10 figure, but beyond that, a new deep corrective wave is likely to follow. It is also possible to form a new downward (and also corrective) series of waves with targets around the 1.06 figure or slightly lower.
On a higher wave scale, it is also visible that the wave pattern is becoming more complex. We will likely see an upward wave set, but its length and structure are currently difficult to imagine.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out and often bring changes.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There can never be 100% certainty in the direction of movement. Remember protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
