The wave count of the EUR/USD 4H chart has undergone certain changes. The upward section of the trend continues developing, but now it looks more like a correction. Initially, I thought that three waves up would appear, but now it is perfectly clear that there are five waves. Thus, we get a complex corrective structure of waves a-b-c-d-e. If this assumption is correct, then the construction of this structure may be nearing completion, since the peak of wave e exceeds the peak of wave c. In this case, at least three waves down are likely to appear. If the last section of the trend was corrective, then the next one will most likely be impulsive. Therefore, I am preparing for a new strong decline in the pair. A successful attempt to break 1.0359, which corresponds to 261.8% Fibonacci, indicates that the last up wave is incomplete.
The most important thing now is that the wave counts of the pound and the euro coincide. The scenario when the euro and the pound will trade in different directions is highly unlikely. Theoretically, this is possible, but in practice it happens extremely rarely. Now both currencies are supposedly building corrective sections of the trend, which may end in the near future. Thus, the British pound can start to decline within the new downtrend section.
The US currency continues to decline due to a number of reasonsEUR/USD rose by another 90 pips on Tuesday. Thus, we are already seeing an increase in the instrument almost every day, which is an unusual occurrence indeed, because in the last couple of years, the European currency has usually been declining. At present, the market is experiencing a decrease amid the risk-aversion sentiment. The geopolitical situation in Ukraine is not stabilizing, but it is not getting worse either. It makes no sense for investors to panic again and try to save their capital by converting it into the US dollar. The Fed announced its readiness to start slowing down the pace of interest rate hikes, and this was one of the main factors behind the growth of the US dollar in 2022. At the same time, the ECB followed the example of the Fed and announced its readiness to tighten monetary policy as long as it takes to bring inflation back to 2%. All these factors support the demand for the euro.
However, the current wave count does not imply a long-term growth of the euro. Of course, wave e can turn out to be almost any size, but if we compare it with the previous waves, then it already turns out to be too long. Further, either the entire section of the trend will require adjustments, or it will end in the coming days. I believe that the increase in quotes will still end this week, because the euro is growing too fast. The news background does not justify to this growth of the European currency by 20%. The euro added 700 points in the last week and a half. Previously, the market had reasons to go bullish (amid the inflation report in the US), but this week there are no supportive factors.
Based on the analysis, I conclude that the construction of the uptrend segment has become more complicated to five-wave and its development continues amid the inflation report and statements by FOMC members. However, I do not advise buying now, since the wave count does not yet imply a further increase. It is better to sell in case of a successful attempt to break through 1.0359 with targets located near the estimated 0.9994, which corresponds to 323.6% Fibonacci.
On the higher wave scale, the wave count of the descending part of the trend noticeably becomes more complicated and lengthens. We have seen five upward waves which are most likely an a-b-c-d-e structure. The construction of a downtrend section can be resumed after the construction of this section is completed.