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The wave pattern on the 4-hour chart for the EUR/USD instrument has changed. If we analyze the trend segment that began in September 2022, when the European currency fell to the 0.9530 mark, we see that we are within an upward set of waves. However, identifying larger-scale waves in this segment takes a lot of work. In other words, there needs to be a clear, impulsive trend. We constantly observe alternating three and five-wave corrective structures. The market has yet to form a clear three-wave downward pattern from the peak in July last year. First, there was a wave down that overlapped the lows of previous waves, then a deep wave up, and now, for the seventh consecutive month, something unclear is building.
Since January 2024, I can only identify two a-b-c three-wave structures with a reversal point on April 16. Therefore, the first thing to understand is that there must be a trend. After the completion of the current wave c, the construction of a new three-wave downward pattern may begin. The trend segment from April 16 may take on a five-wave form but will also be corrective. Under such circumstances, I cannot believe in a prolonged rise of the euro currency.
The support point may pull the euro down.
On Wednesday, the EUR/USD rate rose by another 50 basis points, which is quite a lot, considering the amplitude of movements in recent months. Most importantly, I need help understanding the reasons for the renewed demand for the European currency. Today, the Eurozone released the final inflation report for June. As in the initial estimates, core and headline inflation were 2.5% and 2.9% year-over-year. The values fully matched market expectations. Therefore, why did the euro rise today?
I have been asking this question for several days but am still seeking an answer. The wave pattern has undergone significant changes, and at the moment, it supports further demand for the euro, as wave c may turn out to be much longer than it is now. This would not be surprising. The market continues to dispose of the American currency based on the belief in a Fed rate cut in September. The probability of this scenario is already 95%, according to the CME FedWatch tool. The inflation report, which showed no changes or deviations, could not have been the reason for the new rise in the instrument.
Based on the above, the rise in quotes fully corresponds to the current wave pattern, but the market's reaction to the news background looks very ambiguous. Undoubtedly, the factor of the FOMC rate cut in September (which is still unconfirmed) is a strong factor, and the market may react to it for a long time. But over the last three weeks, it feels like there has not been a single positive news for the dollar. And that is not true.
General Conclusions.
Based on the analysis of EUR/USD, the instrument has moved to constructing a series of corrective structures. From current positions, the rise may continue within the framework of a three-wave or five-wave corrective structure. Therefore, it is difficult to identify the targets for the rise of the European currency. The instrument may reach the 10-figure mark, but beyond that, a new deep corrective wave will likely follow. It is also possible to form a new downward (and also corrective) series of waves with targets around the 6-figure mark or slightly lower.
At a higher wave scale, it is also visible that the wave pattern is becoming more complex. We are likely to see an upward set of waves, but its length and structure are difficult to imagine now.
The main principles of my analysis:
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