The wave pattern on the 4-hour chart for the EUR/USD instrument has taken on a different look. If we analyze the trend section that began in September 2022, when the euro fell to 0.9530, we are within an upward set of waves. However, even within this section, it is difficult to identify higher-degree waves. In other words, there is no clear impulse trend. We constantly observe the alternation of three and five-wave corrective structures. Even now, the market has not built a clear three-wave downtrend from the peak in July last year. First, there was a wave down that covered the lows of previous waves, then a deep wave up, and now, for the seventh consecutive month, something incomprehensible is being formed.
Since January 2024, I can only identify two a-b-c three-wave structures with a reversal point on April 16th. Therefore, the first thing to understand is that there is no current trend. After the current wave c is completed, a new three-wave downward movement may begin. The trend section from April 16th may develop into a five-wave pattern but will also be corrective. In such circumstances, I cannot believe in a prolonged rise of the euro.
The ECB's Decisions Did Not Surprise the Market
The EUR/USD pair decreased by ten basis points on Friday and 40 basis points the day before. Such a weak market reaction was due to the lack of "shocking news" from the ECB on Thursday. Market participants did not expect the ECB to decide to change interest rates, nor did they expect Christine Lagarde to talk openly about a rate cut in September. What was not expected did not occur. Therefore, the market had no new information to react to yesterday: it was already aware of all the announced details.
Market consensus regarding the ECB also did not change. Christine Lagarde did not make any bold statements about inflation. She did not say it might start rising soon, nor did she talk about its further slowdown. Accordingly, market participants still expect a second round of monetary policy easing in September and another one by the end of the year.
Today, one of the ECB's governors, Gediminas Simkus, confirmed the market's expectations for two rounds of easing by the end of the year. Another ECB governor, Francois Villeroy de Galhau, confirmed his readiness to lower interest rates twice. The ECB is consistent and clear in its statements. At the beginning of the year, Christine Lagarde hinted at June as the time for the first rate cut, which is exactly what happened. Many ECB policymakers are talking about two cuts by the end of the year, so that is likely to happen.
General Conclusions
Based on the analysis of EUR/USD, the instrument has moved to form a series of corrective structures. From the current positions, the rise may continue within a three-wave or five-wave corrective structure. Based on this, it is impossible to name the targets for the euro's rise. The instrument may reach the 10th level, where waves a and c will achieve equality. The formation of a downward wave d may follow this. It is also possible to form a new downward (and also corrective) series of waves with targets around the 6th level or slightly lower.
On a larger wave scale, the wave pattern is becoming more complex. We are likely to see an upward set of waves, but its length and structure are currently uncertain.
Basic Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
- If there is confidence in what is happening in the market, it is better not to enter.
- There is never, and can never be, 100% certainty in the direction of movement. Remember to use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
