The wave layout of the 4h chart for the euro/dollar pair is quite clear. Wave d is completed. A decline in the quotes in recent weeks led to the breakout of wave c in C has been broken, so the current descending wave is already quite definitely wave e in C. However, in the last few days, the euro advanced considerably. It may be an internal corrective wave in the structure of wave e or the first wave in the structure of wave D or even a new upward trend segment. At least now an increase in the price looks like the first wave in the composition of wave D. In this case, the descending wave C has completed its construction, and its internal wave e has turned out to be shortened. This is still just an assumption. After the ECB meeting, the euro many resume its downward movement. In this case, the entire wave e in C may take a five-wave form. So, a drop in the instrument will continue for several more weeks.
The euro is likely to end the week with big gainsThe euro/dollar pair increased by another 50 pips on Wednesday. Thus, demand for the euro keeps growing. At the same time, the US dollar lost luster with investors. Today, the EU released an inflation report for January. Contrary to expectations, the consumer price index rose even more and amounted to 5.1% on an annual basis. The core consumer price index decreased to 2.3% on yearly basis. From my point of view, this data is very contradictory. On the one hand, inflation continues to accelerate. On the other hand, the core inflation indicator, excluding food and energy prices, turned out to be quite positive. It showed a slowdown in January. The ECB is sure to take notice of it. Therefore, I cannot say for sure whether it is good or bad for the euro. The results of the ECB meeting will be announced tomorrow. The ECB is likely to ignore inflation data when making a monetary policy decision. However, despite the fact that the probability of a rate hike tomorrow is zero as well as throughout 2022, traders are confident that the ECB will have to tighten monetary policy this year. Analysts at The Financial Times newspaper also noted it yesterday. Investors expect an increase in the key rate this year by 0.1%. It is difficult to say what effect a 0.1% rate increase may have on the economy because in this case, the interest rate will amount to -0.4%. The ECB will continue to monitor inflation. If it continues to grow, the central bank will have no choice but to raise the interest rate.
Conclusion:Judging by the wave analysis, I believe that the construction of the ascending wave d is completed. Now, it is necessary to open short positions on the instrument for each downward MACD signal in the expectation of building wave e in C. The target level will be 1.0948, which corresponds to the Fibonacci retracement level of 161.8%. If the pair fails to break through the 1.1314 level, it may lead to the completion of the construction of an internal wave as part of e in C. A successful breakthrough may cancel the construction of wave e. So, the construction of wave D may start.
On a larger timeframe, the construction of wave e in C is now underway. This wave may take a five-wave form or it may be shortened. Taking into account that all the previous waves were not too long and were approximately the same size the current wave may be of the same length. I think there is a high chance that this wave will complete its construction rather than build three more waves as part of C.