The wave analysis of the 4-hour chart for the EUR/USD pair remains unchanged. Currently, we are observing the construction of the presumed wave 3 in 3 or c from the downtrend segment. If this is indeed the case, the decline in quotes will continue for quite some time, as the first wave of this segment completed near the 1.0450 mark. Therefore, the third wave of this trend segment should end below.
Moreover, the 1.0450 mark is the target only for the third wave. If the current downtrend segment turns out to be impulsive, then we can expect a total of five waves, and the European currency could decline below the 1.0000 mark. Undoubtedly, it isn't easy to expect such a development of events now, but over the past years, surprises in the currency market have been abundant. Anything is possible.
Can we change the wave analysis? There is always a chance. However, if since October 3rd of last year, we have been observing a new upward trend segment, then the last downward wave does not fit into any structure, which cannot be. Therefore, an upward segment is only possible with a strong complication of the wave analysis.
Demand for the euro does not change at the beginning of the week.
The EUR/USD pair rate did not change on Tuesday, which is quite surprising considering the news background in the first half of the day. The reports needed to be more consistent in terms of their meaning for the currency market. If Germany's GDP in the first quarter grew by 0.2%, then in the fourth quarter, it was lowered to -0.5%. If the GDP report in Germany was negative, then in the European Union, it was positive, as it indicated a value of +0.3% q/q. Inflation in the European Union was 2.4% in April, which fully matched market expectations, but at the same time, core inflation slowed to 2.7%, while markets expected an even greater slowdown. All European reports of the day are difficult to interpret in favor of any specific currency.
For me, inflation remains the key report. If the main indicator has not accelerated, and the core one has slowed down, it means that the ECB's plan continues to work, and the regulator's current level of "restrictiveness" is enough to achieve price stability. Inflation continues to move towards the target level of 2% and is already very close to it. Therefore, the ECB in June has more and more chances to make a positive decision on transitioning to a more "dovish" policy. In my opinion, this is the most important thing now because a high probability of starting policy easing means that demand for the European currency will continue to decline. This is exactly what is needed for the current wave analysis. This week, the situation may be spoiled by statistics from the United States, but let's hope that it will not be disastrous, which undoubtedly will cause a decline in the US dollar.
General conclusions.
Based on the analysis of EUR/USD, the construction of a downward set of waves continues. Waves 2 or b and 2 in 3 or c are completed, so in the near future, I expect the continuation of the construction of an impulsive downward wave 3 in 3 or c with a significant decline in the pair. I continue to consider selling with targets near the calculated mark of 1.0462, as the news background remains on the side of the dollar. A successful attempt to break the 1.0637 mark, which equates to 100.0% Fibonacci, will indicate the market's readiness for new sales.
On the larger wave scale, it is visible that the presumed wave 2 or b, which in length was more than 61.8% Fibonacci from the first wave, so it may be completed. If this is indeed the case, then the scenario with the construction of wave 3 or c and a decrease in the pair below the 4-figure mark has begun to be implemented.
The main principles of my analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to play out; they often bring changes.
- If there is confidence in what is happening in the market, it is better to avoid entering it.
- There is never 100% certainty in the direction of movement. Do not forget about Stop Loss orders for protection.
- Wave analysis can be combined with other types of analysis and trading strategies.
