The EUR/USD wave layout on the 4-hour chart has not changed at all lately which is good for us as it gives us an understanding of how the situation may develop. The ascending section of the trend has taken a clearly corrective and extended form which looks more like a momentum section. So, we have a complex corrective wave pattern consisting of a-b-c-d-e parts where wave e has a more complex structure than the previous four waves. If the current wave setup is correct, then this structure has already been completed as the wave e turned out to be much longer than the preceding waves. If so, we can expect the formation of at least three descending waves. That is why I still anticipate a decline in the pair. In the first weeks of the year, the demand for the euro was either rising or remained consistently high. In this period, the instrument retreated from the reached highs only once. In early February, the pressure on the US dollar eased. So, the current pullback from the recent highs can be considered the start of a new descending section of the trend. Hopefully, the news background and the market sentiment won't stop the formation of descending waves.
Powell's speech moves markets
The EUR/USD pair went up by 5 pips on Tuesday. The pair was trading with sharp fluctuations throughout the day due to Jerome Powell's speech. Yet, neither the euro nor the US dollar managed to show significant results. The speech by the Fed Chair was the major event of the day. Giving a speech to the Economic Club of Washington, Powell repeated several times that the fight against rising inflation would take longer and would be more difficult than expected. This comment can have different interpretations. On the one hand, it can mean higher interest rates, expectations of a slowdown in inflation, or it can simply mean nothing. In other words, Jerome Powell repeated his previous statement that the interest rate will not be lowered in 2023. Yesterday, he was talking about the need to keep the rate at its peak levels for longer. It remains unclear whether Powell meant a more aggressive approach to monetary policy or he was talking about the need for more time to see inflation decline. The instrument first jumped by 100 pips and then declined by the same amount which indicates market confusion with Powell's words.
There were no more important events on Tuesday. Today, you should probably pay attention to the statement by FOMC members as they may give some clarity to the message from yesterday. The statement by FOMC members John C. Williams, Michael S. Barr, and Christopher J. Waller is unlikely to influence the market as traders usually prefer to rely on what Jerome Powell says.
Based on the analysis above, I can conclude that the ascending section of the trend has been completed. With this in mind, I would recommend selling the pair with the targets located at 1.0350, which corresponds to the 261.8% Fibonacci level. It is also highly possible that the ascending section of the trend will get a more extended form. For the first time in recent weeks, we see the signs of a new descending section of the trend.
On higher time frames, the wave layout of the ascending section of the trend is getting longer and may already be completed. We have identified five ascending waves that most likely make up the a-b-c-d-e pattern. The pair may already have started the formation of a descending section so it can decline by another 300-400 pips.