The wave analysis of the 4-hour chart for the EUR/USD pair remains unchanged. At the moment, we are observing the construction of an assumed wave 3, 3, or c of a downward trend section. If this is indeed the case, then the decline in quotes will continue for quite a long time since the first wave of this section completed its construction near 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 section turns out to be impulsive, then we will have a total of five waves, and the European currency may well fall below the 1.0000 mark. Of course, it isn't easy to expect such a development of events now, but in recent years, there have been plenty of surprises in the foreign exchange market.
Can the wave layout be changed? In recent weeks, the pair has mostly been rising. Still, sooner or later, the market should take into account the beginning of the process of easing the ECB's monetary policy, which should reduce demand for the European currency. A new successful attempt to break through the 1.0788 mark will greatly add confidence to this scenario.
The US currency was shocked by the inflation report.
The EUR/USD exchange rate did not change on Thursday due to the very untimely and inappropriate producer price index in the United States. However, I will talk about this report a little later. So far, the market has been practically in a state of panic in the last 24 hours. The direction of trading is constantly changing; the dollar is rising and falling, and all these movements are very poorly correlated with the news background. Yesterday, the US inflation report showed a decrease from 3.4% to 3.3% year-on-year. As it turned out, the market was not even ready for such a slowdown. I want to ask the participants what they expect. There is a very interesting situation when, for some reason, no one expects a slowdown in inflation in the United States at the maximum Fed rates. Further, inflation slows down by 0.1%, and for the market, such news becomes almost a shock, and the dollar flies into the abyss. The current market situation in the last day and the last weeks is abnormal.
After a slight downward pullback, the producer price index was released today, which fell by 0.2% in May. Once again, the markets were unprepared for a minimal slowdown in inflation. I want to ask again: why does no one expect inflation to decrease if this is what Jerome Powell and all his colleagues are talking about? The market itself is working purposefully against the American currency. If you set deliberately higher forecasts, then any value can be considered weak for the US currency. And for the second day in a row, we are seeing dollar collapses on inflation reports, which show a minimal slowdown. At the same time, the Fed signals the continuation of a "hawkish" policy.
General conclusions.
Based on the analysis of EUR/USD, the construction of a downward set of waves continues. In the near future, I expect the resumption of the construction of an impulse downward wave 3 in 3 or c with a significant decrease in the pair. I continue to consider only sales with targets near the estimated 1.0462 mark. A successful attempt to break through the 1.0788 mark, which equates to 76.4% Fibonacci, will give new confidence that the market is ready to build a downward wave 3 in 3 or c.
On the higher wave scale, the assumed wave 2 or b, which was more than 76.4% Fibonacci in length 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 4th figure continues to be realized.
The basic principles of my analysis:
1) Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.
2) If you are not sure what is happening in the market, it is better to avoid entering it.
3) There is no absolute certainty in the direction of movement, and there can never be. Remember about Stop Loss protection orders.
4) Wave analysis can be combined with other types of analysis and trading strategies.
