The wave analysis of the 4-hour chart for the EUR/USD pair remains unchanged. At the moment, we observe the construction of the presumed wave 3 or 3 from the downtrend segment. If this is indeed the case, the decline in quotes will continue for a very long time, as the first wave of this segment completed its construction around the 1.0450 mark. Therefore, the third wave of this trend segment should end even lower.
The market continues to reduce demand for the euro at a very slow pace as if doubting its actions, although the news background fully supports the US dollar. The unsuccessful attempt to break through the 1.0955 level, which equates to 61.8% according to Fibonacci, indicated the completion of the construction of wave 2 or 3. Therefore, the pair has the potential for decline, and it is significant.
Is there a possibility of a different wave analysis? Yes, there always is. However, if since October 3 of last year, we have been observing a new upward trend segment, then the previous downward wave does not fit into any structure, which cannot be. Therefore, an upward segment is possible only with a strong complication of wave analysis.
Inflation in the EU decreased more than expected.
The EUR/USD pair rate increased by 25 basis points on Tuesday, and today, it added another 6 as of the beginning of the American session. Yesterday, the entire news background only supported the American currency. Inflation in Germany has already decreased to 2.2% on an annual basis, and the JOLTS report on job openings in the US turned out to be slightly higher than market expectations. Therefore, the US currency had all the reasons to continue to rise in price yesterday. However, sellers did not see any reason to reduce demand for the pair. Today, the situation was practically repeated. Inflation in the European Union decreased more than the market expected - immediately to 2.4% y/y. Core inflation fell to 2.9%. This is negative news for the euro.
Inflation in the European Union is falling, if not quickly, then very confidently, almost every month. All this tells us that the ECB will definitely lower the rate in June for the first time. And the forecasts from Yannis Stournaras about four rounds of policy easing this year may turn out to be quite real, although just a week ago, they may have seemed fantastic. At the same time, the markets are currently expecting a maximum of three rounds of easing from the Fed in 2024. Therefore, the ECB's stance is more "dovish," and demand for the European currency should continue to decline. Today, the unsuccessful attempt to break through the 1.0787 level, which corresponds to 76.4% according to Fibonacci, may indicate the market's readiness for new sales after a small pause.
General conclusions.
Based on the analysis conducted for EUR/USD, the construction of a downward set of waves continues. Waves 2 or b and 2 in 3 are completed, so in the near future, I expect the continuation of building an impulsive downward wave 3 or 3 with a significant decline in the pair. I continue to consider sales with targets around the calculated level of 1.0462, which corresponds to 127.2%, according to Fibonacci.
On a larger wave scale, the presumed wave 2 or b, which in length exceeded 61.8% according to Fibonacci from the first wave, may be completed. If this is indeed the case, then the scenario of building wave 3 or c and lowering the pair below the 4-figure mark has begun to be implemented.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play with; they often bring changes.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There is never a hundred percent certainty in the direction of movement. Remember about Stop Loss protective orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
