The 4-hour wave analysis for the EUR/USD pair remains unchanged. Currently, we observe the formation of the presumed wave 3 within wave 3 or C of the downtrend segment. If this is indeed the case, the decline in quotes will continue for quite some time, as the first wave of this segment completed near the 1.0450 mark. Therefore, the third wave of this trend segment should end lower, even if it does not take on an impulsive form.
The 1.0450 mark is the target only for the third wave. If the current downtrend segment takes on an impulsive form, then we can expect a total of five waves, and the euro could decline below the 1.0000 mark. Undoubtedly, it isn't easy to expect such a development of events right now, but there have been plenty of surprises in the currency market in recent years.
An alternative scenario I see now is the transformation of wave 3 or C into a corrective pattern with five waves of type a-b-c-d-e. Even in this case, the low of wave 3 or C should be below the low of wave 1 or A. Therefore, if the formation of wave e within wave 3 or C has started now, rather than wave 3 within wave 3 or C, the decline of the instrument should continue.
De Guindos urges markets to take their time with conclusions.
The EUR/USD rate rose by 5 basis points at the time of writing the review on Wednesday, and added 10 points on Tuesday. Therefore, market activity is again very low, as indicated by the amplitude of movements, which is only 15 points today. Based solely on these data, strong movements should not be expected this week. The news background is quite weak both in the US and the EU, with only secondary data coming to the market that could cause reactions of 20-30 points, but no more.
Demand for the Euro is gradually increasing. Such movement poses no threat to the integrity of the current wave count, as the increase is very weak. The Euro is rising because yesterday, US Vice President Luis de Guindos urged markets not to rush events and not to count on a rate cut in September as a done deal. Central bank policymakers are warning the market against excessive expectations repeatedly. Remember that for the first six months, FOMC members constantly talked about the Fed rate beginning to decline when there was confidence in achieving the inflation target. Now, de Guindos and other ECB policymakers are saying that further rate cuts will depend on maintaining a downward trajectory in inflation and the pace of its slowdown. Therefore, the likelihood of a second round of easing in September is currently 50-50.
General Conclusions
Based on the analysis conducted on EUR/USD, the formation of a bearish wave set continues. In the near future, I expect the continuation of the downtrend wave 3 or C with a significant decline in the instrument. I continue to consider only selling with targets around the calculated mark of 1.0462. The internal wave count of wave 3 or C may take a five-wave corrective form, but even in this case, quotes should drop to the 1.4-figure area.
On a larger wave scale, it is evident that the presumed wave 2 or B, which reached more than 76.4% Fibonacci retracement of the first wave in length, may have been completed. If this is indeed the case, the scenario with the formation of wave 3 or C and the decline of the instrument below the 1.4-figure continues to unfold.
Key principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to trade and often lead to changes.
- If there is no confidence in the market situation, it's better not to enter it.
- There is never 100% certainty in the direction of movement. Don't forget about Stop Loss orders for protection.
- Wave analysis can be combined with other types of analysis and trading strategies.
