The wave pattern of the EUR/USD pair on the 4-hour chart has taken on a slightly different look. If we analyze the entire trend segment starting in September 2022, when the European currency dropped to the 0.9530 mark, we are in a rising wave set. However, even within this segment, it is challenging to distinguish the waves of a larger scale. In other words, there is no clear, impulsive trend. We constantly observe the alternation of three- and five-wave corrective structures. Even now, the market has failed to establish a clear downward three-wave pattern from the peak reached in July last year. It started with a downward wave that overlapped the lows of previous waves, followed by a deep wave up, and now, for the seventh month in a row, what is being constructed needs to be clarified.
Since January 2024, I have only been able to distinguish two three-wave structures, a-b-c, with a pivot point on April 16. Therefore, the first thing to understand is that there is no trend. After the completion of the current wave c, the construction of a new three-wave pattern downwards may begin. The trend segment from April 16 might take on a five-wave appearance, but it would also be corrective. Under such circumstances, I do not expect prolonged growth for the euro.
Last week did not end well for the dollar, and this week started similarly. The EUR/USD exchange rate increased by 70 basis points on Monday, but by the end of the day, the instrument might retreat slightly downward. I assumed that wave c might still need to be completed, as in such cases, the market often strives to reach equality of waves a and c. However, let's be honest: would we have seen the instrument rise by 200 points if not for Friday's statistics? If the latest important reports on the labor market and unemployment in the U.S. had not disappointed market participants, the U.S. currency could have continued to rise in price (as it had been doing in recent weeks), which would also match the current wave pattern.
However, what happened happened. The number of payrolls in July was significantly below market expectations. The figure for June was revised, and the unemployment rate rose to 4.3%, which was a complete surprise to many. On Monday, no derogatory news for the U.S. currency has yet been received, but demand for the dollar continued to fall. Later today, the ISM business activity index in the U.S. services sector will be released, so the dollar has every chance to fall even lower relative to the euro. However, a failed attempt to break through the mark of 1.0985, which equates to 100.0% Fibonacci, may temporarily halt the instrument's rise. I also note that the business activity indices in the services sectors of Germany and the E.U. for July, released this morning, did not provide a basis for strong purchases of the euro.
General conclusions
Based on the analysis of EUR/USD, I conclude that the instrument has transitioned to building a series of corrective structures. The increase may continue within a five-wave corrective structure from the current positions. However, a scenario with the construction of a downward wave d is now more likely. It is also possible to build a new downward (and also corrective) series of waves with targets located below the 6-figure if the rising wave series a-b-c remains three-wave. There still needs to be a clear trend; the proposed wave d may start its construction at the mark of 1.0985 or from the 10 figure.
On a larger wave scale, it is also apparent that the wave layout is transforming into something more complex. We might be expecting a rising wave set, but its length and structure are currently difficult to imagine.
Main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out and often undergo changes.
- If one does not have confidence in the market's performance, it is better not to enter it.
- There can never be a hundred percent certainty about the direction of movement. Do not forget about protective Stop-Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
