The wave pattern on the 4-hour chart for the EUR/USD pair has taken on a slightly different appearance. If we analyze the entire trend section starting in September 2022, when the European currency dropped to the 0.9530 mark, we see that we are within an upward wave set. However, it is challenging to distinguish even waves of a larger scale within this section. In other words, there is no clear impulse trend. We constantly observe alternating three and five-wave corrective structures. The market has not yet built a clear downward three-wave from the peak in July last year. First, there was a wave down that broke 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 highlight two a-b-c three-waves with a turning point on April 16th. Therefore, the first thing to understand is that there is no current trend. A new downward three-wave may form after the current wave c is completed. The trend section from April 16th may take on a five-wave appearance, but it will still be corrective. Under such circumstances, I cannot believe in a prolonged rise of the euro currency.
Do Not Invent Reasons
The EUR/USD exchange rate did not change on Monday. There was no news today except that Joe Biden is withdrawing his candidacy from the upcoming presidential election. Instead, Kamala Harris, currently the Vice President, will run. For the forex market, this news had no significance. Let me remind you that over the past six months, a sideways trend has formed for the instrument, and all wave structures are corrective and constantly alternating. Therefore, in the coming weeks, I can expect the euro to decline because the current upward three-wave can be considered complete.
However, at the same time, corrective wave sets can vary in the number of waves and strength. This is the problem with such non-standard movements. Everything is clear and understandable when dealing with a classic structure (impulse - correction). When dealing with alternating corrective wave sets, any structure can take on a more extended or complex form at any moment.
Even now, wave c can take on a more extended form, or it may end, and the entire wave structure from April 16th may take on a five-wave a-b-c-d-e form. Therefore, it is impossible to say confidently where the instrument will move next. The news background for the increase has been played out, so we are expecting the instrument to decline. If you look closely at the charts, in the last six months, the peaks and lows of the waves are usually relatively intact. The distance between them usually does not exceed 100 basis points.
General Conclusions
Based on the conducted analysis of EUR/USD, I conclude that the instrument has transitioned to building a series of corrective structures. From the current positions, the increase may continue within a three-wave or five-wave corrective structure. Based on this, it is impossible to name the targets for the euro's increase now. The instrument may reach the 10th figure, where waves a and c will achieve equality. Then, a downward wave d may follow. It is also possible to build a new descending (also corrective) series of waves with targets around the 6th figure.
The wave pattern transforms at a higher wave scale into a more complex one. We are likely expecting an upward wave set, but its length and structure are difficult to imagine.
Basic Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out and often change.
- If one is not confident in the market's performance, it is better to avoid entering it.
- There can never be 100% certainty in the direction of movement. Always remember to use Stop Loss orders.
