The wave analysis of the 4-hour chart for the euro/dollar pair remains quite clear. The entire upward section of the trend, which began its construction last year, has taken on a complex structure, and in the last six months we have seen only three-wave structures that alternate with each other. Recently, I have regularly said that I am waiting for the pair near the 5th figure, from where the construction of the last upward three-wave began at the time. I still do not refuse my words. The next ascending three-wave structure has been completed, so the market has started building a downward trend section.
Theoretically, the trend segment originating on May 31 may still take a five-wave form with the structure a-b-c-d-e. However, every day, the chances of this are less and less. The last descending wave has already gone beyond the low of wave b. We likely see another descending set of waves, at least three. And at the moment, even the first wave of this set is still ongoing. The news background is weak for the euro remains weak.
Demand for the EU currency continues to fall
The exchange rate of the euro/dollar pair on Tuesday decreased by another 20 basis points, and the amplitude of the pair was 25 points. The pair moves very weakly, but the news background is almost absent now. Yesterday, Bundesbank President Joachim Nagel gave a speech, and today the JOLTS report on the number of open vacancies in the United States in July will be released. Both of these events are not significant for the market. Lagarde and Powell's speeches last Friday had a much greater impact on the market mood. I have no doubt that at this time the market continues to trade on the basis of that information, as well as on the basis of the general state of things. And what is it like?
The market clearly understands that the ECB is preparing to complete the process of tightening monetary policy. While Jerome Powell allowed one or two more increases in the key rate in 2023, Christine Lagarde, on the contrary, made it clear that the regulator is preparing for a pause. As the ECB's approach begins to weaken, and the Fed's approach remains tough, we see a decrease in demand for the euro currency and an increase in the dollar. And since in the first two weeks we did not receive important news that could change the market's attitude to this factor, the European currency continues to fall quietly.
Even the first wave of a new downward trend segment still needs to be completed. The longer it turns out, the longer the entire downward section of the trend will be. Consequently, the European currency has real prospects of falling much below the 5 figure, which I now consider a target.
Based on the analysis, the construction of an upward set of waves is completed. I still consider the targets in the area of 1.0500-1.0600 quite real, and I advise selling the pair with these targets. The a-b-c structure looks complete and convincing, hence complete. Therefore, I continue to advise selling the pair with targets around 1.0788 and 1.0637. The construction of a downward trend segment will continue, but a corrective wave may begin soon.
On the older wave scale, the wave pattern of the ascending trend section has taken on an extended form, but is probably completed. We saw five upward waves, which are most likely the a-b-c-d-e structure. Next, the pair built four three-waves: two down and two up. It has entered the stage of building another descending three-wave structure.