The way EUR/USD traded this week deserves a spot in textbooks—under the section "Exceptions to the Rules." Despite wave patterns indicating the construction of an upward trend and a nearly 100% supportive news backdrop for buyers, we didn't see any significant movement throughout the week. While the overall wave layout remains intact, trader sentiment may have been negatively impacted, as there were plenty of reasons to expect greater volatility.
As a result, we may see the market continue trading with relatively low activity going into the new week. If last week—despite objectively strong news—failed to trigger a rally, it implies that the market has entered a pause phase, which could be due to any number of reasons. Perhaps investors are spooked by the uncertainty surrounding the U.S. government shutdown. Or maybe market participants are waiting for labor market and unemployment data from the U.S., which are currently unavailable. Ultimately, the reasons aren't as important as knowing when this sideways movement will come to an end.
Based on the upcoming economic calendar, the probability of breaking out of the current range next week is quite low. European Central Bank (ECB) President Christine Lagarde is scheduled to speak almost every day, while Jerome Powell will take over during the weekend.
However, it's important to note that Lagarde's frequent speeches have become somewhat routine and rarely offer the market anything new. The same applies to economic data. Even the latest inflation report for September, which could have potentially impacted monetary policy expectations, turned out to be a non-event. Although annual inflation climbed to 2.2%, it's already apparent—Lagarde or not—that such a reading won't justify an additional round of stimulus, nor will it warrant policy tightening.
The new week's economic releases include EU retail sales and German industrial output. But given that traders brushed off even more important reports this past week, we shouldn't expect any meaningful market reaction to these upcoming releases either.
Wave Structure for EUR/USD:
From my analysis of EUR/USD, I conclude that the pair is still in the process of developing an upward trend segment. The wave structure remains heavily dependent on the news flow related to Trump's decisions and the internal and external policies of the current U.S. administration. The trend has potential targets as high as the 1.2500 level (25th figure). We're currently seeing the formation of a corrective wave 4, which may have already completed. The overall bullish wave structure remains valid. Therefore, I'm currently only considering long positions. By year-end, I expect the euro to rise to 1.2245, which corresponds to the 200.0% Fibonacci level.
Wave Structure for GBP/USD:
The wave structure for GBP/USD has evolved. We're still dealing with an impulsive bullish leg, but its internal wave structure has become difficult to interpret. If wave 4 turns into a complex three-wave formation, the structure will normalize—but this would also make wave 4 significantly more prolonged than wave 2. In my view, the key level to monitor is 1.3341, which corresponds to the 127.2% Fibonacci. Two unsuccessful breakout attempts at this level indicated the market's readiness to resume buying. My targets for GBP/USD remain above the 1.3800 mark (the 38th figure).
Core Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are hard to trade and are often subject to change.
- If there is no confidence in market direction, it's better to stay out altogether.
- You can never be 100% sure of directional moves. Don't forget to use stop-loss orders.
- Wave analysis can be (and should be) combined with other types of analysis and trading strategies.
