21.06.2024 06:28 PM
Analysis of EUR/USD pair on June 21, 2024

The wave pattern on the 4-hour chart for the EUR/USD pair remains unchanged. Currently, we are observing the formation of the presumed wave 3 in 3 or c of the downtrend. If this is indeed the case, the decline in quotes will continue for quite some time, as the first wave of this segment completed around the 1.0450 mark. Therefore, the third wave of this trend segment should end lower, even if it does not take on an impulsive form.

The 1.0450 mark is only a target for the third wave. If the current downtrend takes on an impulsive form, then we can expect a total of five waves, and the euro could well decline below the 1.0000 mark. Of course, it is quite difficult to expect such a development of events now, but there have been plenty of surprises in the currency market in recent years.

An alternative scenario I see now is the transformation of wave 3 or c into a corrective form with five waves of type a-b-c-d-e. Even in this case, the low of wave 3 or c should be below the low of wave 1 or a. Therefore, if the construction of wave e in 3 or c has started now, rather than 3 in 3 or c, then the decline of the pair should continue.

The euro is ready to continue its decline.

The EUR/USD pair fell by 25 basis points on Friday. The amplitude of the movements was again insignificant, but the euro began to lose steadily by 20-30 points every day. This is how trading in this instrument will go over the next few months. Today, the news created certain pressure on the European currency, but it should be understood that even without it, the demand for the US dollar may continue to decline. It's all about the monetary policy of the ECB and the Fed, as I have said many times before. The European currency was in an extremely disadvantageous position against the dollar even before the ECB decided to start easing its policy, as the interest rate in the Eurozone was a whole 1% lower than in the US. Now, the gap has started to widen.

The central bank rate is a key tool for influencing the economy and inflation. Therefore, even a change of 0.25% will lead to certain changes. Now, inflation in the Eurozone will slow down more slowly (but the ECB no longer needs it quickly), and the economy will gradually start to pick up. Demand for the euro will fall because financial conditions in the US (in particular, deposits and Treasury bonds) are more attractive than in the EU. Therefore, demand for the US dollar will rise. Perhaps not significantly, but the ECB will continue to lower the rate, so every 1.5-3 months, the dollar may receive news support.

General conclusions.

Based on the analysis of the EUR/USD, the formation of a bearish wave set continues. In the near future, I expect the continuation of the formation of the descending wave 3 or c with a significant decline in the pair. I continue to consider only selling with targets around the calculated mark of 1.0462. The internal wave pattern of wave 3 or c may take a five-wave corrective form, but even in this case, quotes should fall into the 1.04 area.

On a larger wave scale, it is evident that the presumed wave 2 or b, which has extended by more than 76.4% Fibonacci from the first wave, may have completed. If this is indeed the case, then the scenario involving the construction of wave 3 or c and the decline of the instrument below the 1.04 level continues to unfold.

The basic principles of my analysis:

  • Wave structures should be simple and understandable. Complex structures are difficult to play with and often bring about changes.
  • If there is confidence in what is happening in the market, it is better to avoid entering it.
  • There is never and cannot be a hundred percent certainty about the direction of movement. Don't forget about stop-loss orders.
  • Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
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