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The Elliott wave count on the 4-hour chart for the EUR/USD pair remains somewhat unconventional yet comprehensible. The quotes have been retracting from their previously reached peaks, implying that the three-wave upward structure can be considered completed. The entire bullish leg of the trend, which initiated on March 15, could theoretically adopt a more complex structure, but I currently anticipate the formation of a downward trend leg, which is likely to also be a three-wave movement. Recently, I have consistently mentioned that I expect the pair to approach the 1.05 mark, which is where the formation of the bullish three-wave structure originally commenced.
The peak of the most recent trend segment was only a few dozen points higher than the peak of the previous bullish segment. Since last December, the pair's movement can be considered sideways, and I anticipate this type of movement will continue. The presumed 'b' wave, which could have started its formation on May 31, currently looks rather unconvincing. However, the quotes are trending upward, so in due course, it might evolve as expected.
On Friday, EUR/USD added several more dozens of pips after jumping by 120 the day before. The pair's quotes surpassing the previous peak indicate that the presumed 'b' wave has taken a three-wave form, and hence could complete its formation at any time. If this is indeed the case, we should anticipate a reversal next week and the commencement of the construction of the third downward wave as part of the current bearish trend leg. This is the scenario I currently anticipate.
Yesterday, more detailed analysis revealed why the demand for the US dollar significantly decreased throughout the day. I mentioned that the main reason is the wave count that anticipates the construction of a bullish wave, and I stand by that assertion. Additionally, for the first time in a long while, the report on initial U.S. unemployment claims exceeded the forecast range and showed a higher increase. These are all indicators of a weakening U.S. labor market, which has led to the dollar's decline.
However, the prospects for the euro remain bearish. Inflation in the European Union continues to weaken, and economic growth in the first quarter was negative. This leads me to believe that the European Central Bank has a specific plan on rate hikes which, of course, isn't disclosed. The market has already priced in two 25 basis-point rate hikes, and no more is expected from the ECB. Considering all the aforementioned factors, I conclude that the ECB won't soften its approach, but it won't harden it either. The market has already factored in a 50 basis-point increase this summer.
Based on the analysis conducted, I conclude that the formation of a new bearish trend leg continues. Therefore, selling is currently advisable, as the instrument has substantial room for decline. I still believe that the targets around the 1.0500-1.0600 area are quite realistic, and it is with these targets in mind that I recommend selling the instrument. The corrective wave commenced at the 1.0678 mark, so I suggest new sell trades either upon a successful attempt to breach this level or following an obvious completion of the 'b' wave. During the correction, the instrument could potentially reach the 1.09 mark, but the 'b' wave already has a firm basis for completion.
On a larger wave scale, the wave count of the bullish trend leg has taken an extended form, but it is likely completed. We have seen five upward waves that are likely to be part of an a-b-c-d-e structure. Subsequently, the instrument constructed two three-wave structures, downward and upward. Currently, it is probably in the phase of constructing another downward three-wave structure.
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