The wave count on the 4-hour chart for EUR/USD has become more complex. On the higher time frame (bottom chart), the downward trend segment has taken the form of a five-wave A-B-C-D-E structure, which could be complete at any moment, as it appears fully developed. All waves within this segment are approximately equal in size, so this structure is considered corrective. If this assumption is correct, the completion of this segment will mark the beginning of an upward impulsive trend segment, with targets well above the 1.2000 level.
On the lower time frame (top chart), an impulsive wave sequence continues to develop and may belong to wave E on the higher time frame. If this is indeed the case, the dollar's strengthening is nearing its end, regardless of how much further it rises. The presumed wave 5 of E is either complete or close to completion. In either case, the current wave structure suggests that the downward wave sequence is nearing completion on both charts. News developments and a sharp shift in market sentiment have driven a strong rally in the US dollar, but few new factors remain to support further dollar appreciation.
The Market Favors the Dollar
The EUR/USD pair fell by another 25 basis points on Monday, measured from Friday's closing level. Over the past two weeks, the news background has been relatively subdued, allowing the euro to improve its already difficult position, at least slightly. However, even with limited economic news, the market found reasons to stop buying the European currency. Unrest in France, which has already spread to other EU countries; the threat of renewed conflict in the Middle East; and rising prices for oil, gas, and other energy resources were all interpreted by market participants as clear reasons to hold on to the US dollar.
The market's logic is understandable. Few people in the world currently expect all geopolitical conflicts to end, energy prices to fall, or a return to the conditions of 2020 or 2015. Therefore, while it is reasonable to hope for the best, it is necessary to prepare for the worst. This is precisely what the market is doing now: preparing for the worst. This includes the resumption and escalation of the war in the Middle East, the continuation of the conflict between Ukraine and Russia, further increases in energy prices, and a severe energy shortage during the cold season, which has effectively already begun. Amid global geopolitical, economic, and political uncertainty, it is preferable to hold the most stable and secure assets available. As a result, demand for the US dollar remains consistently high.
It should be recalled that the current wave count points to the completion of the downward trend segment on both time frames, or at least suggests that its completion is near. Most economists point to the euro's oversold condition and the dollar's unexplained strength, which lacks a clear economic basis. In other words, the dollar had reasons to appreciate in recent months, but was there sufficient justification for such a strong rally? Unfortunately, the news background and market participants' concerns could invalidate the current wave count. Nevertheless, a decline in the euro below the 1.1100 level is not expected.
General Conclusions
Based on the EUR/USD analysis, the pair remains within the broader corrective A-B-C-D-E trend structure. However, this structure appears fully developed and may therefore be complete. In the current conditions, it may be a favorable time not only to buy the euro but also to anticipate the development of a sustained upward trend segment. According to the higher time frame, the pair could rise to at least the 1.1700–1.1800 level. The failed attempt to break above the 1.1126 level, which corresponds to the 50.0% Fibonacci retracement level (bottom chart, higher time frame), also indicates that the market may be preparing for a recovery.
The higher time frame shows a downward trend segment that has taken the form of an A-B-C-D-E structure. The internal wave structure of wave E has developed into a five-wave impulse and may already be complete. If this assumption is correct, a new upward trend segment will begin to develop.
Key Principles of the Analysis:
- Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often involve changes in the market outlook.
- If there is no confidence in the current market situation, it is better to stay out of the market.
- There can never be absolute certainty about the direction of price movement. Do not forget to use protective Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
