The wave analysis of the 4-hour chart for the euro/dollar pair remains non-standard but quite understandable. The quotes continue to move away from the previously reached highs, so the three-wave upward structure can be considered complete. The entire ascending trend that started on March 15th may take on a more complex structure, but at the moment, I expect the formation of a downward trend segment, which is likely also to be a three-wave structure. Recently, I have consistently mentioned that I expect the pair to be around the 5th figure, from where the upward three-wave movement started.
The top point of the last trend segment was only a few dozen points higher than the peak of the previous upward segment. Since December of last year, the pair's movement can be considered horizontal, and such a character of movement will persist. The presumed wave b, which could have started its formation on May 31st, currently looks very inconclusive, but at the same time, it can end at any moment, as three waves are already visible inside it.
The dollar is losing support but maintains its prospects
The euro/dollar exchange rate increased by 40 basis points on Tuesday. Demand for the European currency started to rise early in the morning when nothing was interesting except for the inflation report in Germany. Even the report on German inflation is unlikely to have interested the markets since they were already familiar with the preliminary assessment for May. The final value only confirmed the preliminary one. The pair increased during the day based on the highly probable decrease in inflation in the United States. I want to remind you that the consumer price index in April was 4.9%, while market expectations for May were 4.1%. As a result, inflation decreased to 4.0% y/y, better than expectations and forecasts.
Despite inflation turning out better than expected, there was no increase in demand for the US currency. The wave analysis of the pair currently implies the formation of a corrective wave, so I support the upward movement of the pair. It is also worth it because a faster decline in inflation will be taken into account by the Federal Reserve, which is expected to announce the results of the June meeting tomorrow evening. Since inflation has decreased more than expected by the market, the chances of a rate hike tomorrow have practically fallen to zero. The US currency could have received support but not this week. Nevertheless, the current wave analysis has virtually no alternative scenario. Wave b must be formed, followed by another downward wave c. Therefore, with a high degree of probability, we will see a strengthening of the US currency in the coming months.
General conclusions.
Based on the conducted analysis, the formation of a new downward trend segment continues. Therefore, it is currently advisable to recommend selling, and the pair has significant room for decline. I still consider the targets around 1.0500-1.0600 quite realistic, and I advise selling the pair with these targets. New sales are recommended in case of a successful breakthrough of the 1.0678 level or after an obvious completion of wave b. Within the correction, the pair may reach the 9th figure, but wave b already has all the grounds for completion.
On a higher wave scale, the wave analysis of the upward trend segment has taken on an extended form but is likely completed. We have seen five upward waves, most likely the structure of a-b-c-d-e. The pair then formed two three-wave movements, down and up. It is probably in the process of forming another downward three-wave structure.
