The wave structure of the euro/dollar pair on the four-hour chart is still looking convincing. Wave d turned out to be longer than I expected. However, this does not change the key idea of the wave structure. The pair broke the low of wave c in C. That is why the current downward line is wave e in C. Thus, wave C is formed of 5 waves. There are no internal waves in wave C. It means that it could be longer than expected. A successful break of 1.1152, that is the 127.2% Fibonacci level, may point to the fact that the market is ready to continue selling the instrument. In case of a failure, a corrective wave may start its formation after a significant decline.
On Wednesday, the euro/dollar pair dropped by 65 points, and on Thursday, it lost 90 pips. The market is trading under the influence from the FOMC meeting. The Fed kept the key interest rate unchanged at 0.25%. However, it is ready to raise the benchmark rate as many times as needed in 2022 to curb the surging inflation and return it to the targeted level near 2%.
The regulator noted that the current inflation level is much higher than the target one. According to Jerome Powell, the pandemic continues to negatively affect economic and business activity. However, the country's economy has demonstrated very good resilience and is coping well with a new wave of diseases. Powell also emphasizes that the current size of the Fed's balance sheet is much higher than it should be, and the FOMC members continue to discuss the possibility of its reduction. This issue will be tackled more seriously at the next meeting after the first rate hike. The first increase in the interest rates is highly likely to happen in March. By the end of February, the Fed may completely abandon monetary stimulus. In March, it is going to raise the benchmark rate for the first time, and in April it will discuss how and when to start selling bonds from its balance sheet. All these actions of the US regulator may only be perceived as hawkish. Any initiative to tighten monetary policy should support demand for the US dollar. Now, according to Jerome Powell, the Fed should not worry as much about the recovery of the labor market as it did a few months ago.
The labor market situation is quite stable now and the unemployment rate has already approached the levels observed before the pandemic. Thus, now, the regulator may focus on the fight against inflation. This year, the Fed may take a decision to tighten its monetary policy at any meeting. Against this background, the US dollar may form a downward trend section for a very long time.
Conclusion
Judging by the analysis, the formation of the downward wave d is completed. Now, traders may sell the instrument with targets located at 1.0948, that is the 1.161% Fibonacci level. If the pair fails to break the level of 1.1152, the downward correctional wave in e in C may start its formation.