The wave analysis of the 4-hour chart for the euro/dollar pair remains not quite standard but has mostly stayed the same in recent weeks. At the same time, a retreat of quotes from previously reached highs began, so the three-wave upward structure can be considered complete. The entire ascending segment of the trend can still take on a five-wave, corrective form, but at this time, I expect to build a new downward segment of the trend, which will also turn out to be a three-wave. Recently, I have regularly stated that I am waiting for the pair around the 5th figure, where the rise of the European currency began.
The upper point of the last trend segment turned out to be only a couple of dozen points higher than the highest point of the previous upward segment. Since December of last year, the pair's movement can be considered horizontal, which will be preserved. In the last 2–2.5 months, demand for the euro currency has been constantly growing, but I have repeatedly drawn attention to the fact that the news background for the euro currency is not strong enough for it to rise in price so much. However, now it becomes clear: it was necessary to build a convincing ascending set of waves before proceeding to form a descending one.
Demand for the euro currency continues to decline.
The euro/dollar pair fell by 30 basis points on Wednesday, demonstrating a weak amplitude. Today in the European Union, the final inflation report for April was released, which showed an acceleration to 7.0% y/y. At the same time, the core inflation indicator slowed down to 5.6% y/y. The market reacted quite restrainedly; demand for the euro currency decreased from the very morning. Overall, the pair is falling more under wave analysis pressure than the news background. The ascending segment of the trend is built, so a decrease should continue under any news background. The markets already consider the global factor of ECB rates, and economic statistics are usually not strong enough to reverse trends.
In addition to the inflation report, the President of the Bank of Spain, Pablo Hernandez de Cos, gave a speech today. In his interview, he said that prolonged high inflation would slow the pace of economic recovery and force the ECB to keep rates high for longer. He also noted that the European regulator may raise rates several times in response to high inflation. High rates will eventually increase the cost of borrowing and bank financing, worsening the quality of credit risks, de Cos believes.
From his speech, several things can be understood. First, the ECB still needs to complete its monetary policy tightening program. Second, some banks may experience funding problems in 2023, threatening new bankruptcies. Although the ECB intends to continue raising the rate, the euro is unlikely to respond to this "hawkish" sentiment anymore, and it is already considered.
Based on the analysis conducted, the formation of the upward segment of the trend is complete. Therefore, it is advisable to sell now, and the pair has much room for a decline. The targets in the region of 1.0500–1.0600 can be considered quite realistic. With these targets, I advise selling the pair on MACD indicator reversals "down" as long as the pair is below the 1.1030 mark, corresponding to 0.0% Fibonacci.
On the older wave scale, the wave analysis of the ascending segment of the trend has taken on an extended form but is likely completed. We have seen five waves, which are most likely an a-b-c-d-e structure. The formation of the downward segment of the trend may still need to be completed, and it can take any form in terms of structure and length.