The wave structure of the upward trend still consists of five waves. Meanwhile, the trend that has been forming after it seems to be pretty clear. If the current wave structure is accurate, the quotes will probably fall to the targets set in the area of 1.1900 and 1.1800. However, the formation of the upward trend may well continue or a new trend may begin.
The wave structure in the shorter time frame also indicates that the upward trend is over. Thus, I still believe that the formation of the downward trend has already started. In fact, two of its waves have already been completed. However, Wave 3 cannot be identified until the price tries to break through the low of Wave 1. Most likely, only three waves of the downward trend will be formed. After that, the upward trend will resume. In fact, the wave structure of the upward trend will become even more complex. Anyway, this is just an assumption.
The greenback is still rising. Since the start of 2021, the US dollar has been moving in the uptrend. At the same time, there was no relatively good news in the United States in January. However, news is not all that matters. The current wave structure indicates the downward trend as a correction is needed. The question is what will happen when three waves down will be formed?
Yesterday, Europe presented its GDP report for the fourth quarter. The economy contracted by 0.7% compared to the third quarter. Experts had forecast GDP to plunge by 1% and even more. Thus, this is a relatively positive reading of the one hand, but it is still a reduction on the other hand. Meanwhile, the US economy expanded by 4.% according to the last report. It is natural that when one economy is rising and the other one is declining, markets focus on the currency of the country with a growing economy. Consequently, the greenback took the lead from the euro at the beginning of 2021. There is one more question. How long will the US dollar be in the lead? Despite expansion in the third and fourth quarters, the American economy is still struggling to recover.
Fed's Jerome Powell repeatedly addressed the situation. Apart from that, President Biden, who has developed his own $1.9 trillion rescue plan, is talking about it now. Thus, the US economy needs more financial aid to continue recovering. Therefore, the circumstances in the US are also far from perfect. Nevertheless, the greenback has been in demand since the start of 2021. Today, traders should focus on the services PMI reports that are set for release in both the US and the UK. Eurozone's inflation data also deserves special attention. The inflation rate in the euro area is estimated to increase to 0.4% year-on-year. Another important event in the US will be the publication of the ADP employment change, which is the second most meaningful labor market report after Non Farm Payrolls.
Overall conclusion and trading recommendations:
The upward trend on EUR/USD has supposedly come to end. Thus, I recommend that one should sell the instrument with the targets set in the area of 1.2000 and 1.1900 when each new "down" signal of the MACD indicator and taking into account the formation of Wave 3.
