The wave count on the 4-hour chart for EUR/USD has become more complex. On the higher timeframe (lower chart), the downward trend segment has taken the form of a five-wave A-B-C-D-E structure, which could be completed at any time, as it appears sufficiently developed. All the waves within this segment are approximately equal in size, which is why this movement is considered corrective. If this assumption is correct, the completion of this structure will be followed by the development of an upward impulse segment, with targets well above the 1.2000 level.
On the lower timeframe (upper chart), the development of an impulsive wave sequence continues, which may belong to wave E of the higher timeframe. If this is indeed the case, the dollar's strengthening is nearing its end, regardless of how much further it may appreciate. The expected wave 5 of E has either been completed or is approaching 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 significant appreciation of the U.S. dollar, but there are few new reasons for further dollar strength.
Donald Trump Has Lost.
The EUR/USD exchange rate rose by 35 basis points on Wednesday, although the euro's gains had been considerably larger during the day. The market reacted almost uniformly to the results of the U.S. Congressional elections. However, it very quickly concluded that the dollar remained preferable to the euro, regardless of developments in the United States. Overall, market participants once again largely ignored economic reports, political developments, and geopolitical prospects. It is worth recalling that following the Republicans' defeat in the elections, it will be much more difficult for Trump to continue the war with Iran, particularly when it comes to securing funding for military operations. The Democratic Party has already announced its intention to force the president to end what it considers a pointless war. Therefore, whether Donald Trump wants to or not, he will now have to take the Democrats' position into account. They are clearly unwilling to support Trump's imperialist ambitions.
In addition, it became known yesterday that inflation in the European Union continues to rise, making an ECB interest rate hike in December even more likely. Overall, there is virtually no doubt that the European Union will enter a third round of monetary policy tightening. However, expecting such a move and actually pricing in the forthcoming changes are two different things. Despite the euro's appreciation over the past few days, it still appears unable to realize its full potential, as market participants are ignoring many relevant factors. Even yesterday, the euro gained only 35 points, despite the significant easing of geopolitical tensions and the strengthening of the ECB's hawkish policy outlook.
Based on all the above, the expectation remains that a full-fledged upward trend segment will develop, as this is precisely what the wave count on both timeframes currently suggests. The market is still buying the euro cautiously. However, the Bank of England could provide additional momentum for the euro today, followed by U.S. labor market and unemployment data tomorrow.
General Conclusions
Based on the EUR/USD analysis, the pair remains within the global corrective trend structure A-B-C-D-E. However, this structure appears fully developed and may therefore be complete. At present, conditions appear favorable not only for buying the euro but also for anticipating the development of a full-fledged upward trend segment. According to the higher timeframe, the pair is expected to rise by at least to the 1.1700–1.1800 level. The unsuccessful attempt to break below 1.1126, corresponding to the 50.0% Fibonacci level (lower chart, higher timeframe), also indicates that the market may be ready to move higher.
On the higher timeframe, the downward trend segment is visible in the form of an A-B-C-D-E structure. The internal wave structure of wave E has taken the form of a five-wave impulse, but this structure may already be complete. If this assumption is correct, the development of a new upward trend segment will begin.
The Main Principles of the Analysis:
- Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often involve changes in the wave count.
- If there is no clear understanding of current market conditions, it is better to stay out of the market.
- There can never be absolute certainty about the direction of price movement. Do not forget to use protective Stop Loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
