The wave structure for the EUR/USD pair on the 4-hour chart is becoming more complex. If we analyze the entire trend segment that began in September 2022, when the European currency fell to 0.9530, we see that we are within an upward wave structure. However, even within this segment, identifying higher-scale waves is challenging. In other words, there is no clear impulsive trend. We observe a constant alternation of three- and five-wave corrective patterns. Even now, the market has not managed to form a clear three-wave downward correction from the peak reached in July of last year. Initially, there was a wave down that overlapped the lows of previous waves, followed by a deep upward wave, and now, for the seventh consecutive month, an unclear pattern is forming.
Since January 2024, I can identify only two a-b-c three-wave patterns with a reversal point on April 16. Therefore, the first thing to understand is that there is currently no trend. After the current wave c completes, a new three-wave downward correction may begin to form. The trend segment from April 16 may take on a five-wave structure, but it will also be corrective. Under such circumstances, I cannot believe in a prolonged rise of the euro, although it could potentially continue for several more months.
The EUR/USD rate increased by another 10 basis points on Monday, but the amplitude of movements today was low. Therefore, the construction of the upward wave structure continues, and the market keeps increasing demand for the European currency based on its expectations of a Fed rate cut in September. It's fortunate that the market has abandoned the idea of a 50 basis point cut, as it believed just a few weeks ago. However, I believe that the market is in for a huge disappointment once again.
Today, one of the FOMC governors, Neel Kashkari, stated that it would be "appropriate to discuss a rate cut in September." It is important to note that "to discuss" and "to cut" the rate are not the same thing. Let me remind you that the Bank of England's Monetary Policy Committee, despite inflation falling to the target level, decided to cut the rate by a majority of just one vote. Therefore, at least 10 FOMC members must vote "for" a rate cut in September. Additionally, we still need to see one more inflation report and one more labor market report. What if these reports turn out better than the Fed expects? However, the market has already priced in a rate cut by the U.S. central bank and continues to anticipate this event. Nevertheless, wave c is in any case moving towards its completion.
General Conclusions
Based on the analysis of EUR/USD, I conclude that the pair continues to build a series of corrective structures. From the current levels, the upward movement may continue within the framework of a five-wave corrective structure, and the scenario involving the formation of a downward wave d is temporarily postponed. However, this does not mean that this wave cannot start forming today. Around the 1.1073 level, wave c may be completed, giving the U.S. dollar a temporary pause. But we cannot command the market to create wave d; it continues to sell the dollar under any circumstances, pricing in the Fed's rate cuts in September, November, December, and in 2025.
On a higher wave scale, it is also apparent that the wave structure is becoming more complex. We are likely facing an upward wave structure, but its length and composition 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 often undergo changes.
- If there is no certainty in the market, it is better to stay out.
- There can never be 100% certainty in the direction of movement. Don't forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
