The wave pattern of the 4-hour chart for the euro/dollar has transformed once more, yet it remains reasonably clear. The upward trend initiated last year adopted a complex structure, and over the past six months, we've observed a series of three-wave structures alternating. I've frequently stated that I expect the pair to hit the 5-figure mark, the starting point for the upward three-wave pattern. I haven't changed my stance, but we must now await the conclusion of the current three-wave.
In theory, the trend that began on May 31 could evolve into an impulsive five-wave pattern, but asserting this with confidence is currently challenging. The news background isn't strong enough to drive a 350 basis point rise in the euro in a week. A successful attempt to break through the 1.1172 mark, corresponding to 127.2% Fibonacci, indicates the market's readiness to continue purchases. However, it takes time to define the reasons and justification for this.
US inflation rates have surprised everyone, yet the dollar has been on a downward movement for a week.
The euro/dollar rate rose another 60 basis points on Thursday. We saw no signs of a reversal or even a minor corrective wave following yesterday's increase. Demand for the US currency continues to grow. It grew before the inflation report came out, during, and after. The rationale behind this market behavior is challenging to determine.
I've previously mentioned that overall and this week specifically, recent reports haven't been negative enough for the US currency to warrant daily declines. Take today, for instance. Industrial production in the European Union rose by 0.2% m/m against market expectations of +0.3%. The US Producer Price Index slowed to 0.1%, generally aligned with forecasts. The initial unemployment claims for the past week fell below market predictions. Of these three reports, two should have supported the dollar. Yet, the market currently appears indifferent to economic statistics.
In the European Union, Ignazio Visco, a member of the ECB Governing Council, indicated that the regulator is nearing the peak of the interest rate. This information is decidedly "dovish," yet the market disregarded it and provided no support for the dollar. One conclusion emerges from all this: demand for the EU currency is increasing because the market deems it appropriate. The market doesn't require economic reasoning to continue buying the euro/dollar pair. Wave c may extend in various ways, but I don't foresee such a trend lasting for an extended period.
General conclusions.
Based on the analysis, the formation of an upward wave set is ongoing but can end at any moment. Targets in the area of 1.0500-1.0600 are quite realistic, and with these targets, I advise selling the pair. However, we now need to wait to complete the a-b-c structure, after which we can expect a decrease in the specified area. Purchases are quite risky. The euro currency takes advantage of any opportunity to rise, but the news background for the dollar is stronger than it might seem to some.
On the larger wave scale, the wave pattern of the upward trend section took an extended form but is likely completed. We saw five waves up, which are most likely the a-b-c-d-e structure. The pair then built three three-wave structures: two down and one up. It is likely in the process of building another ascending three-wave structure.
