The wave pattern on the 4-hour chart looks very clear and does not raise any questions. In my previous review, I have mentioned several times that I expect to see the formation of at least three downward waves which may be followed by a rise in the euro/dollar quotes. On a larger time frame, the wave pattern of the trend that was formed at the beginning of this year may acquire the a-b-c-d-e form. If this is true, then the instrument will continue to move within the three-wave formation in the next month. By this time, the formation of two out of three waves has been completed. So, I expect that a third wave will be built with the targets located below the low of wave a. Thus, the price may continue to decline to the level of 20 or below. Currently, I do not see any signs of a complex wave layout. Therefore, I recommend trading in line with its current version.
The current news background is in sync with the existing wave pattern. The wave pattern suggests the construction of a descending wave, while a report issued in the EU does not support the demand for the euro. The report on retails sales volumes in January was much worse than expected. On a monthly basis, retail sales declined by 5.9%, while year-on-year they fell by 6.4%. Against this backdrop, the euro depreciated in the first half of the day. The report on unemployment rate turned out to be neutral, although the indicator was again high - 8.1%. Today, the US released the data on initial jobless claims. However, markets did not react to this news as the current numbers have almost completely coincided with the estimates. On Thursday, Fed's Chair Jerome Powell is expected to comment on the latest situation in the debt securities market. We are talking about US government bonds that have recently shown strong growth in yields, thus raising worries among market participants the US Treasury. Also, at the beginning of 2021, the bond market saw a wave of sell-off as investors began to fear inflation which could accelerate amid the huge US economic stimulus program. In this case, the yields of already issued bonds will become negative. Jerome Powell will have to answer all the related questions. If the head of the Federal Reserve gives more details on this issue, market participants will have an idea about further plans of the regulator regarding higher Treasury yields. It is also possible that the quantitative easing program will be gradually phased out or the so-called targeting of the Treasury yields will be introduced. This information may shake the markets on Thursday, but it is hard to predict the reaction. I advise you to base your trading strategy on the wave pattern which signals the continuation of the downtrend on EUR/USD.
The wave layout of the ascending section of the trend looks complete and is about to reach a five-wave form. So far, it shows no signs of a more complicated structure. However, the next section of the trend takes on a rather complicated horizontal form. The instrument will probably build alternating three-wave structures in the near future. Thus, I expect the instrument to rise by 300 pips after the formation of three downward waves is completed.
