The wave pattern on the 4-hour chart for EUR/USD remains unchanged. Currently, we are observing the formation of the presumed wave 3 in 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 an impulsive form.
The level of 1.0450 serves as the target only for the third wave. If the current downtrend assumes an impulsive form, then we can expect a total of five waves, and the euro could decline below the 1.0000 mark. Undoubtedly, expecting such a development at this moment is quite challenging, but over recent years, the currency market has seen its share of surprises.
As an alternative scenario, I currently envision the transformation of wave 3 or C into a corrective pattern with five waves labeled as 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 construction of wave e in 3 or C has now begun instead of wave 3 in 3 or C, the decline of the instrument should continue.
The euro is poised for further decline
The EUR/USD exchange rate dropped by another 30 basis points on Wednesday. Yesterday, I mentioned that changes of 10, 20, or 30 points are not significant and do not affect the wave pattern. However, at the moment, the instrument has declined by 60 points from the recent peak, which could be considered the beginning of a new downtrend wave within the downward trend segment. I see no obstacles to further depreciation of the European currency, especially if supported by the news background.
The news background can be divided into two types: general, structural news, and economic reports. Structural news has a long-term impact on market sentiment and can drive the instrument in a certain direction for months. Economic data influences the market within a single day. This week, there have yet to be economic reports of the second type. Several reports will be released in the US on Thursday and Friday, but they are not structural, meaning the downtrend segment is likely to persist with a probability of 99%. All we have to do is wait for the price to drop to the 4-figure mark, below which the downtrend segment may be considered complete. However, this will require further confirmation. It has yet to be determined what the structural news background will be like in six months or a year. There may be new compelling reasons for the US dollar to rise by that time.
Conclusions
Based on the analysis of EUR/USD, the construction of a bearish wave set continues. In the near future, I expect the continuation of the downward 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 structure of wave 3 or C may take a corrective form with five waves, but even in this case, quotes should decline into the 4-5 figure range.
On a larger wave scale, the presumed wave 2 or B, which extended beyond 76.4% Fibonacci of the first wave in length, may be completed. If this is indeed the case, the scenario with the formation of wave 3 or C and a decline in the instrument below the 4-figure mark continues to unfold.
Main Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are difficult to play out as they often change.
- If there is uncertainty about market developments, it's better not to enter the market.
- There is never 100% certainty about the direction of movement. Remember protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
