The wave marking of the 4-hour chart for the euro/dollar instrument has undergone certain changes. The demand for European currency has been growing in recent weeks. Quotes have been rising, leading to the fact that they have gone beyond the peak of the last rising wave. Thus, now we have at least a three-wave ascending structure, which can become a new upward section of the trend for five or more waves or remain a three-wave correction. In the first case, the European currency has a good chance of growth over the next few months. In the second case, the quote decline may resume at any moment. The most important thing is that now the wave markings of the pound and the euro coincide. If you remember, I have repeatedly warned about the low probability of a scenario in which the euro and the pound will trade in different directions. Theoretically, this is possible, but it rarely happens in practice. Both instruments assume the construction of at least one more upward wave, and the low of September 28 can be considered a new starting point. The downward section of the trend has become so complicated that even its internal waves are very difficult to identify correctly. But now we have a clear starting point.
Will the dollar be able to regain the confidence of traders after the rate hike?
The euro/dollar instrument increased by 30 basis points on Wednesday, and the amplitude was very low today. There are days when we already see powerful movements before the central bank meeting, but today is not the case. The market is frankly waiting for the evening when the Fed will announce an interest rate increase and how it intends to raise it in the future. By and large, the future meetings of the Fed are now important for the market. Because the current meeting and its results have already been won back, the market has shown us this since the morning. Of course, in the evening, the activity of traders may increase, even if the rate rises by 75 points, as everyone expects. However, if the rate rises by less than 75 basis points, the market may shock, and the demand for the US currency will decrease sharply.
That's what Credit Suisse analysts think. They noted that it is important not only how much the rate will rise but also what the Fed's rhetoric will be. If his representatives, in particular Jerome Powell, start talking about why the rate increase should slow down, this may already be enough for the market to reduce demand for the dollar. Thus, tonight, almost any hint of limiting the rate increase in the future or its growth by less than 75 points can cause an increase in the instrument. I believe that Credit Suisse analysts are right by 80-90%, but I still do not rule out that we will see an even greater decline in the instrument in the evening. Let me remind you that the current wave markup is very ambiguous, and a further decline in the instrument will most likely mean the completion of the construction of an upward trend section.
Based on the analysis, I conclude that the construction of an upward trend section has begun, but it may not last very long. At this time, the instrument can build the third wave, so I advise buying with targets near the estimated mark of 1.0361, which equates to 261.8% on Fibonacci, according to the MACD reversals "up." However, by the end of this trend section, you must be ready now.
At the higher wave scale, the wave marking of the descending trend segment becomes noticeably more complicated and lengthens. It can take on almost any length, so I think it's best to isolate three- and five-wave standard structures from the overall picture and work on them. One of these five waves can be just completed, and a new one has begun its construction.