The wave analysis of the 4-hour chart for the euro/dollar remains quite clear. The entire uptrend segment, which began its formation last year, adopted a complex structure, and in the past six months, we have seen only three-wave structures alternating with each other. I have repeatedly stated that I expect the pair to be around the 5th figure, from where the formation of the last bullish three-wave began. I still stand by those words. The next ascending three-wave structure has ended, so the market has now begun to form a bearish trend segment.
Theoretically, the trend section that began on May 31 could still take on a five-wave form with an a-b-c-d-e structure, but with each passing day, the chances of that happening decrease. The pair has begun to rise in value, which can be interpreted as wave b within the new bearish trend segment. I had previously warned that the formation of this wave might start soon. Therefore, demand for the euro may increase for some time.
The consumer price index did not drop in August.
The euro/dollar rate decreased by 80 basis points on Thursday. Since it had been rising for two days in a row before Thursday and the decline started early in the morning, one should primarily focus on news from the European Union. Germany was the first to release a retail sales report. In July, volumes dropped by 0.8% m/m, against market expectations of +0.3%. A reason for the euro to decline? Yes, indeed. Subsequently, the unemployment rate was released – 5.7% in August, the same as the previous month. The number of unemployment benefit claims rose by 18,000, against market expectations of +10,000. Another reason? Yes, indeed.
A little later, the inflation report for the European Union was released. According to preliminary estimates, the consumer price index did not slow down in August, standing at 5.3%, just as in the previous month. The core consumer price index dropped to 5.3%, in line with expectations. A contentious report and the market's contentious reaction. However, if we assume that the market no longer expects aggressive actions from the ECB regarding the interest rate, everything looks logical. It no longer matters how fast inflation drops if the ECB plans to end its monetary policy tightening program soon.
Based on the above, the euro's decline today is logical. The only thing is that the supposed wave b looks very unconvincing—too weak. Therefore, the first wave of the new downward trend segment might take on a more extended form. Important reports from the US await us tomorrow, which could increase demand for the dollar.
Based on the analysis, the construction of the bullish wave set is complete. I still consider targets in the range of 1.0500–1.0600 to be quite realistic, and with these targets, I recommend selling the pair. Therefore, I advise selling the pair with targets around the 1.0788 and 1.0637 marks. An unsuccessful attempt to breach the 1.0788 mark led to the quotes retreating from the lows reached, likely within wave b. Consequently, I suggest new sales after the completion of this wave's formation.
On a larger wave scale, the wave markup of the ascending trend segment took on an extended form but is likely finished. We observed five upward waves, which most likely form the a-b-c-d-e structure. The pair then constructed four three-wave sets: two downward and two upward. It is likely transitioning to the formation of another descending three-wave structure.