The wave structure of the 4-hour chart for EUR/USD is becoming more complex. There is still no question of cancelling the upward section of the trend (lower chart), which began in January last year. On the contrary, we have seen a complete corrective A-B-C structure, which may have already been completed. However, recent events related to the Federal Reserve and its policy have once again affected the current wave structure, making it more complex. Let me remind you that the news background and wave structure often conflict with each other, making adjustments necessary.
The wave structure has now transformed into a more complex one. Wave C has taken a three-wave form, while the next wave is identified as wave D. The entire trend section that began on January 27 may have taken a five-wave corrective form, A-B-C-D-E. If this assumption is correct, wave D is complete, and on August 21, EUR/USD entered the phase of forming wave E, whose low should be below the low of wave C at 1.1325. The pair is close to this level; below it, the presumed wave E could complete its formation at any time.
The euro currency faces a difficult end to the week.
The EUR/USD pair remained unchanged throughout Wednesday, while the range of movements was once again very narrow. Despite the fact that quite a few important reports were released yesterday and showed very interesting figures, the market once again found no reason to buy the euro, no reason for more active movements, and no reason to sell the dollar. In yesterday's reviews, I already noted that there were far more reasons for the market to buy the European currency on Wednesday than usual. These included stronger-than-expected inflation in Germany, weak PCE and core PCE figures in the United States, a decline in expectations for monetary policy tightening by the Federal Reserve in October, and so on. However, how can the US currency decline if the main reason for its growth is not the news background?
I have already noted that demand for the US currency has been rising for three full weeks, but the reasons for such market behavior remain highly contradictory. Federal Reserve monetary policy tightening may be considerably more modest than market participants have once again priced in. Some FOMC members are already stating this openly. The Federal Reserve is prepared to continue tightening its policy, but who said that the tightening will be aggressive? At present, the regulator allows for one more rate hike. This is not enough to explain why the market has not even considered selling the dollar, which has accumulated a huge number of problems over the past year and a half. In general, in my view, the current decline in the instrument can only be explained by wave E. Below 1.1325, it could complete its formation at any time, and I will be waiting specifically for its completion.
Based on the EUR/USD analysis, I conclude that the pair remains within a global corrective trend section, A-B-C-D-E. If this assumption is correct, the decline in the quotes will continue toward targets below the low of wave C at 1.1325. I considered this scenario an alternative one, and if it had not been for the Federal Reserve meeting, it would have remained so—a backup scenario. However, the Federal Reserve delivered a surprise, and the market was left with no other options but a new wave of US currency purchases. However, these purchases have continued for several weeks, even though there are no new factors supporting the dollar. I would not open short positions against such a news background; instead, I would prepare for a reversal.
On the higher timeframe, a downward section of the trend can be seen, taking the form of A-B-C-D-E. Therefore, EUR/USD may continue to decline below the low of wave C, while the internal wave structure of wave E may take a five-wave impulsive form.
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