The wave analysis of the 4-hour chart for the EUR/USD pair remains unchanged. At the moment, we are observing the construction of the presumed wave 3 in 3 or C from the downward trend segment. If this is indeed the case, the decline in quotes will continue for quite a while longer, as the first wave of this segment completed its formation around the 1.0450 mark. Therefore, the third wave of this trend segment should end lower.
The 1.0450 mark is the target only for the third wave. If the current downward trend segment becomes impulsive, then we can expect a total of five waves, and the European currency may well decline below the 1.0000 mark. Undoubtedly, it isn't easy to expect such a development of events now, but there have been enough surprises in the currency market in recent years. Anything is possible.
Is there a probability of changing the wave analysis? It always exists. However, if since October 3 of last year, we have observed a new upward trend segment, then the last downward wave does not fit into any structure, which cannot be. Therefore, an upward segment is possible only with a significant complication of the wave analysis. I consider such a scenario unlikely, so I will proceed with the basic analysis.
The euro failed to overcome the important mark.
The EUR/USD pair declined by 15 basis points on Wednesday, and the pair's range has been very low for the third consecutive day. Several unsuccessful attempts to break through the 1.0788 mark, which corresponds to 76.4% Fibonacci, indicate that the market is ready to build a new downward wave. This wave does not contradict the current wave analysis, as the presumed wave 3 or C still needs to be fully completed. The euro doesn't even need news background for its decline now, as everything is about the ECB and its monetary policy for the next 3–6 months.
In my opinion, the most important reason for the euro's decline is the difference in rates between the ECB and the Fed. In this word, "difference" lie several sub-points of this difference. I will start with the fact that the ECB rate is 100 basis points lower than the Fed rate. Furthermore, the ECB is preparing to switch to a softer policy as early as next month. Thirdly, the Fed can only conduct the first round of easing at the end of the year. That is, the gap between ECB and Fed rates will begin to increase in June. These reasons are enough for the market to continue reducing demand for the euro.
Also, it is worth remembering that the wave pattern indicates the construction of a global downward wave. Weak economic data from the US allowed the pair to build an upward, corrective wave, but more is needed to break the current wave analysis.
General conclusions.
Based on the analysis of EUR/USD, the construction of a downward wave set continues. Waves 2 or b and 2 in 3 or C are completed, so I expect the resumption of building an impulsive downward wave 3 in 3 or C with a significant decline in the pair. I continue to consider sales with targets around the calculated mark of 1.0462, as the news background remains in favor of the dollar. An unsuccessful attempt to break through the 1.0787 mark, which equates to 76.4% Fibonacci, will indicate the market's readiness for new sales.
On a larger wave scale, the presumed wave 2 or b, which in length was more than 61.8% Fibonacci from the first wave, can therefore be completed. If this is indeed the case, then the scenario with the construction of wave 3 or C and the decline of the pair below the 1.5 figure has begun to be realized.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play, often bringing about changes.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There is never one hundred percent certainty in the direction of movement, and never can be. Remember protective stop-loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
