The wave pattern on the 4-hour chart for EUR/USD has remained unchanged for several months, but in recent weeks it has taken on a more complex form. It is still too early to conclude that the upward trend segment has been canceled, but another decline in the European currency would require adjustments.
The construction of the upward trend segment continues, and the news background continues to support mostly not the dollar. The trade war initiated by Donald Trump is ongoing. The confrontation with the Fed is ongoing. The market's "dovish" expectations regarding the Fed's rate are growing. The U.S. has entered a government "shutdown." The market holds a very low view of Donald Trump's first 7–8 months in office, even though economic growth in the second quarter was nearly 4%.
At this time, we can assume that impulse wave 5 is still under construction, with potential targets reaching as high as the 1.25 level. Within this wave, the structure is rather complex and ambiguous, but at the higher scale it raises no particular questions. Currently, three upward waves can be identified, meaning the instrument is building wave 4 within 5, which has taken a three-wave form and may already be complete.
The EUR/USD rate declined by 45 basis points by the beginning of the U.S. session on Tuesday. Let me remind you that yesterday began with a drop of 100 points, most of which the euro recovered by the end of the day. I do not rule out the possibility that today's bearish impulse will also fail to develop further in the second half of the day.
The news background yesterday and today mostly concerned political events. There were no significant economic events or reports. Two speeches by Christine Lagarde followed the same scenario—without important statements. Earlier, Ms. Lagarde had already stated that the ECB is satisfied with the current level of inflation, as well as with the parameters of monetary policy, effectively putting an end to market expectations of rate cuts by the end of the year. Thus, this issue can be considered closed.
Meanwhile, in France, a new political crisis erupted this week. Prime Minister Sebastien Lecornu resigned after only 27 days in office, marking the fifth prime ministerial resignation in the past two years. The market interpreted this as an alarming signal, while the media is full of headlines about a political crisis in France. Since no significant news about the U.S. "shutdown" is coming in, the market has shifted its attention to Europe—something that has not happened for quite a long time. Let me remind you that almost all movements this year have been driven by Donald Trump's policies, i.e., U.S. news. Most of the time, the euro has been playing the role of a silent observer, passively accepting its fate.
General Conclusions
Based on the EUR/USD analysis, I conclude that the instrument continues to build an upward trend segment. The wave structure still entirely depends on the news background linked to Trump's decisions, as well as the foreign and domestic policies of the new White House Administration. The targets for the current trend segment may extend up to the 1.25 level. At present, a corrective wave 4 is under construction, which may already be complete. The upward wave structure remains valid. Therefore, in the near term, I only consider buying opportunities. By the end of the year, I expect the euro to rise to the 1.2245 level, which corresponds to 200.0% on the Fibonacci scale.
On a smaller scale, the entire upward trend segment is visible. The wave structure is not the most standard, since the corrective waves vary in size. For example, the larger wave 2 is smaller than the inner wave 2 within 3. However, this does happen. Let me remind you that it is best to identify clear structures on charts rather than tying yourself to every single wave. Currently, the upward structure raises almost no doubts.
Key Principles of My Analysis:
- Wave structures should be simple and clear. Complex structures are difficult to trade and often bring changes.
- If there is no confidence in the market situation, it is better to stay out.
- Absolute certainty about market direction never exists and never will. Do not forget about protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
