27.05.202417:58 Forex Analysis & Reviews: Analysis of EUR/USD pair on May 27th. The ECB continues to prepare for the first round of rate cuts

The wave pattern on the 4-hour chart for EUR/USD remains unchanged. Currently, we observe the formation of the expected wave 3 in 3 or c of the downward trend segment. If this is the case, the decline in quotes will continue for quite some time, as the first wave of this segment completed its formation around the 1.0450 mark. Therefore, the third wave of this trend segment should end lower.

The 1.0450 mark is the target for the third wave only. If the current downward trend segment turns out to be impulsive, we are looking at five waves, and the euro could fall below the 1.0000 mark. It is challenging to expect such a development, but the currency market has delivered plenty of surprises over the years. Anything is possible.

Could the wave pattern change? There always is. In recent weeks, the pair has been rising, jeopardizing the integrity of the wave pattern. A successful attempt to break through the 1.0880 mark, which corresponds to 38.2% on the Fibonacci scale, will likely lead to a rise to the 1.0956 mark, where the peak of the second wave is located. Such a scenario could invalidate the wave 3 or c construction.

Olli Rehn confirmed readiness to cut rates

The EUR/USD exchange rate did not change on Monday. Market activity was very weak, and there was virtually no news background throughout the day. However, one event is worth noting. Today, one of the ECB governors, Olli Rehn, stated that inflation is approaching the target level. In June, the regulator will cut interest rates, marking the first round in a broader cycle of monetary policy easing. Mr. Rehn mentioned that the initial rounds of policy easing would not alter the ECB's "hawkish" stance, as inflation still requires close attention. He expressed hope that the geopolitical situation in the world would not escalate soon and that energy prices would not rise. If this happens, the monetary policy parameters will need to be adjusted, and then no one knows how the ECB rate will change.

The market practically did not react to these statements, as nothing was new. The market has been aware of the June rate cuts for a month, so now it's just waiting for the market to transition from expectations and words to actions. The 1.0880 mark has not allowed the euro to move further up, maintaining the current wave pattern, which still suggests the formation of a downward wave and set of waves.

General Conclusions

Based on the analysis of EUR/USD, the formation of a downward wave set continues. In the near future, I expect the resumption of the construction of the impulsive downward wave 3 in 3 or c with a significant decline in the pair. I continue to look for a favorable moment for new sales with targets around the calculated mark of 1.0462. The unsuccessful attempt to break through the 1.0880 mark, equivalent to 61.8% on the Fibonacci scale, indicates the market's readiness for new sales, but it may not be the only one.

On a larger wave scale, it is evident that the supposed wave 2 or b, which exceeded 61.8% on the Fibonacci scale from the first wave in length, may be complete. If this is indeed the case, the scenario with the formation of wave 3 or c and the decline of the pair below the 1.0000 figure has begun to materialize.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play and often bring changes.
2. If there is confidence in what is happening in the market, it is better to avoid entering it.
3. There is never 100% certainty in the direction of movement. Remember protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.