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21.11.2022 04:16 PM
EUR/USD analysis for November 21. The Fed will increase the rate by 50 points in December

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Changes have been made to the wave pattern on the 4-hour chart for the euro/dollar instrument. The trend's upward component is still developing and has shifted into a corrective form. I initially believed that three waves would grow, but it is already obvious that there are five waves. As a result, the waves a, b, c, d, and e have a complex correction structure. The building of this structure might be nearly finished if this supposition is true because the peak of wave e is higher than wave C. In this instance, we anticipate constructing at least three waves downward, but if the previous phase of the trend was corrective, the following phase would probably be impulsive. As a result, I am getting ready for another significant decline in the instrument. The last ascending wave still needs to be completed, as shown by a successful attempt to breach the 1.0359 level, which corresponds to 261.8% Fibonacci.

Now, it's crucial that the wave markings for the pound and the euro match. You may recall that I frequently cautioned you against expecting the euro and the pound to trade in opposition. Although theoretically feasible, this happens incredibly infrequently in reality. Both instruments are presumably constructing corrective trend sections, which could be finished soon. Therefore, the British pound may also decline within the framework of a new downward trend segment.

Dollars were gradually becoming more and more in demand.

On Monday, the euro/dollar instrument decreased by 75 basis points. Since there was no background news today, it is unclear what caused the US currency to increase. However, the dollar is not rising strongly, so it might be market hysteria. We cannot even say with certainty that wave e has finished its construction due to the instrument's current decline. But for more than a week, the entire upward portion of the trend has appeared to be finished. However, for this to happen, the dollar's demand must increase more significantly than it did on Monday. Furthermore, the issues with this are the same as when the euro currency first gained popularity.

Today, 78 out of 84 leading economists surveyed by Reuters predicted a 50 basis point increase in the federal funds rate in December. I wholeheartedly concur with this prediction, which indicates that the rate of monetary policy tightening in December will start to slow down. It was also revealed that, given the slowdown, most economists anticipate three additional rate increases totaling 100 points. As a result, the rate will rise by 25 points in February and March. This situation may increase demand for the EU currency because the ECB may continue to raise the rate by 75 points at each meeting. There is still about a month before the first-rate divergence that disadvantages the dollar. We hope this month will be sufficient to construct the corrective structure of three waves.

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Conclusions in general

Based on the analysis, the upward trend section's construction has grown more complex compared to the five-wave one and is still going on. However, because the wave markup does not suggest a further increase in quotes, I cannot recommend purchasing immediately. If there is a successful attempt to break through the 1.0359 level, I advise selling with stops close to the estimated 0.9994 level, which corresponds to the Fibonacci level of 323.6%.

The wave marking of the descending trend segment becomes noticeably longer and more complicated at the higher wave scale. The a-b-c-d-e structure is most likely represented by the five upward waves we observed. After the construction of this section is finished, work on a downward trend section may resume.

Chin Zhao,
Analytical expert of InstaForex
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