02.01.202517:21 Forex Analysis & Reviews: Analysis of EUR/USD on January 2, 2024

The wave pattern on the 4-hour chart for the EUR/USD pair is becoming increasingly clear and coherent. Since January 2024, I can identify only two three-wave structures (a-b-c) with a pivot point on April 16. After the completion of wave c in the upward structure, a new downward structure began to form, which has a high chance of being impulsive. If this is indeed the case, we can expect a more convincing fifth wave, after which the pair may transition into a prolonged and complex corrective structure.

Overall, the current wave pattern appears straightforward and logical. It's worth noting that while the news background can mislead for a month, two, or even three, it cannot do so indefinitely. Recent U.S. reports show that the economy is not facing significant issues—there is no recession, nor is one anticipated. The economy may slow down, but its current growth rates suggest it can weather this phase without major losses. The Federal Reserve is likely to ease monetary policy more slowly and modestly than the market expected at the beginning of the year. The ECB, on the other hand, sees no reason to pause and will continue its easing.

The Euro Resumes the Fifth Wave

The EUR/USD rate declined by 40 basis points on Thursday. While I didn't expect significant market activity on the year's first trading day, the movements were not entirely negligible either. Although 40 points is a small decline, the instrument has been gradually falling over recent weeks. This aligns with my earlier belief that the proposed fifth wave in the primary trend has already begun. Today, after successfully breaking the low of wave 3, my confidence in this pattern has only grown. Thus, I expect the market to continue reducing demand for the euro, and the instrument may soon approach the 1.0190 level, which corresponds to the 423.6% Fibonacci level.

The news background began to re-emerge on Thursday after a two-week lull. Manufacturing activity indices were released in Germany and the Eurozone (as well as several other EU countries). However, the final values of these indices offered no surprises and, therefore, could not have triggered the euro's decline. In my view, the decline at the start of the year is merely due to the incomplete formation of wave 5. To complete this wave, the market does not necessarily need supportive news for the U.S. dollar. I believe the instrument will find it challenging to fall below the 1.0200 level, but a successful attempt to break this level could indicate an extension of wave 5 within wave 1.

General Conclusions

Based on the conducted analysis of EUR/USD, I conclude that the instrument continues to form a new downward trend segment. A failed attempt to break through the 1.1184 level indicated the start of a series of downward waves. Three failed attempts to breach the 200.0% Fibonacci mark suggested readiness to form wave 5, with targets extending to the 1.0200 level. Hence, selling remains relevant for me.

On a larger wave scale, the wave structure is transforming into a more complex pattern, predominantly consisting of corrective structures. We are likely to see a new set of downward waves, though its length and structure are currently difficult to predict.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are challenging to trade and often subject to changes.
2. If uncertain about the market's direction, it is better to stay out.
3. Absolute certainty in price direction never exists. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.