The wave analysis of the 4-hour chart for the euro/dollar pair remains clear. The ascending trend, which began last year, has developed into a complex structure, alternating three-wave patterns over the past six months. I have consistently mentioned my expectation for the pair to approach the 1.5 figure, where the upward three-wave structure originated. While I maintain this view, we now await the completion of the current three-wave pattern, which may already be finished.
Theoretically, the segment of the trend that commenced on May 31 could take the form of an impulsive five-wave pattern, although it is challenging to assert this with certainty at present. The news background does not drive the euro currency to rise by 300 basis points within a week. A successful break above the 1.1172 level, corresponding to the 127.2% Fibonacci level, indicates the market's readiness to continue buying, targeting around 1.1349, equivalent to the 161.8% Fibonacci level. Despite the wave structure appearing mostly complete, the market needs a significant inclination to increase demand for the US currency.
EU inflation report does not hold surprises
The euro/dollar exchange rate experienced a 40 basis point decline on Wednesday, with the possibility of further declines. The pair's amplitude remains low but gradually increases with the emergence of news events. Today, the EU released the inflation report for June, which did not surprise the markets since the initial value precisely matched the second one (EU inflation is published twice a month). Consequently, inflation slowed to 5.5%, while core inflation increased to 5.5% in June.
As the most prominent indicator continues to decrease, it may result in a reduction in the aggressiveness of statements from ECB Governing Council members and a shift in the regulator's monetary policy. Despite its prolonged increase in demand, this is not favorable news for the euro. Currently, at least one corrective wave is needed. Considering that the pair typically moves in three-wave patterns, we can anticipate the construction of a downward wave structure.
It is worth noting that the wave patterns of the euro and the pound exhibit many similarities at present. These pairs tend to move similarly around 80% of the time, which raises the probability of both currencies forming downward trends. The euro has exhausted its growth potential, and consequently, the pound, which has shown stronger performance, also requires a correction. No significant reports were released from the United States today. Sellers would need to apply more pressure to prevent adjustments and complications in the wave pattern.
Based on the conducted analysis, constructing an ascending wave structure is ongoing but may conclude at any moment. The targets around 1.0500–1.0600 remain realistic, and I recommend selling the pair with these targets in mind. The presumptive completion of the a-b-c structure requires some confirming signals. However, cautious sales are possible at present. As previously mentioned, the downward potential lies within the 5-6 figure range. Buying at the current stage is considered risky.
On a larger wave scale, the wave structure of the ascending trend has taken on an extended form, but it is likely nearing completion. We have witnessed five upward waves, which likely constitute the structure of a-b-c-d-e. The pair subsequently formed three three-wave structures: two downward and one upward. It is probably in the process of constructing another ascending three-wave pattern.