The wave structure of the EUR/USD 4-hour chart has become more complex. On the higher time frame (lower chart), the downward trend segment has taken the form of a five-wave structure, A-B-C-D-E, which could be completed at any moment, as it appears quite well-developed. All waves within this segment are approximately equal in size, so it is considered corrective. If this assumption is correct, a new upward impulse segment will begin once the current structure is complete, with targets located well above the 20 level.
On the lower time frame (upper chart), an impulsive wave structure continues to develop, which may belong to wave E of the higher time frame. If this is indeed the case, then no matter how strongly the dollar rises, its strengthening is nearing an end. The presumed wave 5 of E is either complete or close to completion. In any 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 triggered a strong rise in the US currency, but there are few remaining reasons for further dollar appreciation.
The Euro Retains Some Optimism
The EUR/USD exchange rate rose by 40 basis points on Thursday. Frankly, it is difficult to comment on Wednesday's and Thursday's price movements in light of all the events that took place on both days. To recap, everything began on Wednesday evening, when the Federal Reserve made the widely anticipated decision to leave monetary policy unchanged. This could reasonably have triggered selling of the US currency, as the market saw no hawkish signals, while the possibility of a rate hike in December had already been priced in long ago. However, the dollar either declined only marginally or remained virtually unchanged, and the market reaction was negligible.
On Thursday, the ECB meeting followed exactly the same pattern, with no changes to monetary policy and no significant announcements. Initially, demand for the euro even declined slightly, although no dovish signals were identified in Lagarde's remarks. Shortly before the ECB meeting, the United States released GDP and PCE reports. In my view, both reports could have encouraged the market to resume buying the dollar, as the US economy recorded impressive growth in the third quarter, giving the Federal Reserve greater scope to continue raising interest rates with less risk of adverse consequences. As for the Personal Consumption Expenditures (PCE) price index, it also increased, making further FOMC policy tightening even more relevant.
Therefore, on Wednesday evening, there were reasons to expect EUR/USD to rise, while on Thursday, a decline in the pair appeared more likely. In reality, we saw exactly the opposite movements. In my view, these movements indicate that the downward trend segment has completed its formation. Even if the upward trend I expect does not begin, the market is at least due for a corrective structure. Consequently, under almost any scenario, the euro is likely to strengthen in the near future. Next week will bring the US congressional elections, a Bank of England meeting, Nonfarm Payrolls, the unemployment rate report, and the possible resumption of the war in Iran. Traders will certainly have no shortage of news to follow.
General Conclusions
Based on the EUR/USD analysis, the pair remains within the global corrective trend segment A-B-C-D-E. However, this structure appears fully developed and may therefore be complete. In my view, this is a favorable time not only to consider buying the euro but also to anticipate the formation of a full-fledged upward trend segment. According to the higher time frame, the pair could rise to at least the 17–18 level. The unsuccessful attempt to break above 1.1126, corresponding to the 50.0% Fibonacci level (lower chart, higher time frame), also indicates that the market may be ready for further buying.
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 pattern, which may already be complete. If this assumption is correct, a new upward trend segment will begin to develop.
The main principles of my analysis:
1. Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often involve changes in the market structure.
2. If there is no clear understanding of what is happening in the market, it is better to stay out of it.
3. There can never be 100% certainty about the direction of price movements. Do not forget to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.
