The wave analysis on the 4-hour chart for the euro/dollar pair has become more complex. In the past year, we have seen only three wave structures that constantly alternate with each other. Currently, the construction of another three-wave structure, a downward one, is continuing. The presumed wave 1 is complete, but wave 2 or b has become more complex three or four times, and there are no guarantees that it won't become even more complex.
Although the news background cannot be considered "supportive of the European currency," the market consistently finds new reasons to increase demand for the pair. In my opinion, this situation is not normal. Even if the upward segment of the trend resumes, its internal structure will become completely unreadable.
The internal wave analysis of the presumed wave 2 or b has changed. Since the last downward wave was disproportionately large, I now interpret it as wave b. If this is the case, wave c is currently being constructed, and the entire wave 2 or b may already be completed (or could be completed at any moment). The current pullback from the achieved highs looks convincing, so we can expect a transition to wave 3 or c construction.
The European Union's economy continues to disappoint.
The euro/dollar pair's exchange rate increased by 15 basis points on Wednesday (when writing this review). The range of movement was once again very low. There is practically no news background, only secondary data that has no impact on the market sentiment. The wave pattern remains unchanged since the pair has been at a standstill for a week.
On Wednesday, ECB Vice President Luis de Gindos stated that he expects a slower decline in inflation in 2024 compared to 2023. He also noted the discouraging state of the European economy and the risks, which, in his opinion, are leaning towards deterioration. What conclusions can we draw from these statements? Honestly, none. Inflation will decline more slowly in 2024, as was clear last year. ECB Council members have repeatedly stated that inflation will return to the target level by 2025. If true, the Consumer Price Index will decrease from 3% to 2% for at least a year. This was evident even without Luis de Gindos.
The European Union's economy has been showing negative growth figures for a year and a half. The fact that it has not entered a recession is a Christmas and New Year's gift. The market has been aware of the GDP figure for the last 5-6 quarters, so Luis de Gindos did not "discover America" here either. There are no new conclusions to be drawn after the deputy's statement, and the market did not react to it.
General Conclusions:
Based on the analysis conducted, the construction of a downward wave set continues. The targets around the 1.0463 level have been ideally achieved, and the unsuccessful attempt to break through this level indicates a shift towards constructing a corrective wave. Wave 2 or b has taken on a completed form, so I expect the construction of an impulsive downward wave 3 or c soon, with a significant decrease in the pair. The unsuccessful attempt to break the 1.1125 level, corresponding to the 23.6% Fibonacci, indicates the market's readiness for selling.
On a larger wave scale, it is evident that the construction of corrective wave 2 or b is ongoing, which in length already exceeds 61.8% of the Fibonacci from the first wave. As I mentioned before, this is not critical, and the scenario with the construction of wave 3 or c and a decrease in the pair below the 1.04 level is still in effect.
