The wave pattern on the 4-hour chart for EUR/USD has changed — and, unfortunately, not for the better. It's still too early to conclude that the upward section of the trend has been canceled, but the recent decline in the euro has made it necessary to adjust the wave markings.
We now see a series of three-wave structures (a–b–c), which could be part of a larger global wave 4 within the overall upward trend. In this case, wave 4 has taken on an unnaturally extended form, though the general integrity of the wave pattern remains intact.
The upward trend construction continues, while the news background still provides little support for the dollar. The trade war initiated by Donald Trump continues, as does the President's confrontation with the Federal Reserve. Market "dovish" expectations regarding Fed policy are growing. The U.S. government shutdown continues. The labor market continues to cool down.
In my view, the upward trend segment is not yet complete, with targets potentially extending up to the 1.25 level. This means the euro may still decline for some time — without any fundamental reason, much like it has over the past three weeks — but the wave pattern still indicates further appreciation of the euro.
Tomorrow, the Federal Reserve is expected to cut rates for the second time in a row. On Tuesday, the EUR/USD pair slightly declined, but overall volatility remains subdued, and the wave pattern looks corrective.
Let me reiterate something I emphasize regularly: a wave structure must be clear and simple enough to trade. If we observe only complex and elongated corrective formations, it is better to wait until these corrective structures are complete before entering the market.
Demand for the euro declined slightly on Tuesday — though I wouldn't even look for a specific reason. Over the past month, euro demand has been falling regularly, while news supporting sellers has been relatively scarce. Thus, I do not associate this latest decline with any particular news catalyst.
However, tomorrow evening brings the Fed meeting, where Jerome Powell may announce another rate cut. Powell has repeatedly said that decisions will be made solely based on economic data. Yet, due to the government shutdown, far fewer economic reports were released in October than usual.
It's reasonable to assume that the labor market did not recover significantly in September — if it recovered at all. Therefore, another round of monetary easing would be quite appropriate. However, the market has had at least a month to price in this expected Fed decision — and during this time, the U.S. dollar has nonetheless appreciated. In my view, current movements do not match the news backdrop, and the wave structure has become too complex.
Conclusions
Based on my EUR/USD analysis, I conclude that the pair continues to build an upward trend segment. The market is currently in a pause phase, but Trump's policies and the Federal Reserve's stance remain key factors behind dollar weakness. The targets of the current trend segment could extend up to the 1.25 level. At present, we are likely observing the formation of a complex and prolonged corrective wave 4.
Therefore, in the near term, I continue to consider only buying positions. By the end of the year, I expect the euro to rise to 1.2245, which corresponds to 200.0% on the Fibonacci scale.
On a smaller time frame, the entire upward trend section is visible. The wave pattern is not entirely standard, as corrective waves differ in size — for example, the larger wave 2 is smaller than the internal wave 2 within wave 3. However, such variations do occur. I'll remind you that it's better to identify clear structures on the chart rather than try to account for every single wave. At present, the upward structure looks largely sound.
Key Principles of My Analysis
- Wave structures should be simple and clear. Complex patterns are difficult to trade and often lead to revisions.
- If you are uncertain about market conditions, it's better to stay out.
- There is never 100% certainty in market direction. Always use Stop Loss orders.
- Wave analysis can be combined with other analytical methods and trading strategies.
