The wave analysis of the 4-hour chart for the euro/dollar pair remains quite clear. Over the past year, we have observed only three wave structures, which continually alternate with each other. Over the past few months, I have regularly mentioned that I expect the pair to approach the 1.2500 level, where the construction of the last upward three-wave structure began. This target was achieved after a two-month decline. As expected, the construction of a corrective wave 2 or b began after reaching this target, and it now exhibits a clear three-wave pattern.
None of the recent price increases resembled a complete wave 2 or b. Therefore, all of these were internal corrective waves within wave 1 or a. However, this does not mark the end of the overall decline of the European currency, as the construction of the third wave is still required in any case. Within the first wave, there are five internal waves, so it is complete. Within the second wave, there are three waves, and it may also be complete, or it could take the form of a-b-c-d-e.
The euro surged upwards, but statistics cooled the enthusiasm of buyers.
The euro/dollar pair's exchange rate increased by 75 basis points on Monday, only to decrease by 30 points on Tuesday. When considering the drop from the peak, it amounts to 60 points in just a few hours. This decline suggests the completion of wave c and, consequently, wave b. If this is indeed the case, the construction of the third wave of the downward trend has already begun. It is entirely possible that wave c could take on a more prolonged form, but today's news background once again worked against buyers, leading to a retreat. As I have stated before, I see no reason for a strong strengthening of either the dollar or the euro. Regular statistics confirm my expectations.
Let's begin with the business activity indices in Germany. The manufacturing sector increased from 39.6 points to 40.7, even surpassing expectations. However, any value below 50 is considered negative, and a rise of 1.1 points below the 40 mark is unlikely to please anyone. The service sector declined even further. If the index was 46.4 one month earlier, it has now dropped to 45.8 in October. Once again, a negative value.
Business activity indices in the Eurozone were not any better. The manufacturing sector index dropped from 43.4 to 43.0. In the service sector, it fell from 48.7 to 47.8. In essence, all four of the most important indices for the euro were weaker than market expectations. Therefore, market participants reacted to this data in a predictable manner.
Based on the analysis conducted, I conclude that the construction of a downward set of waves continues. The targets near the 1.0463 mark were ideally achieved, and the unsuccessful attempt to break through this mark indicates the market's readiness to build a corrective wave. In my recent reviews, I warned of the need to consider closing short positions. A successful attempt to break the 1.0637 mark, which corresponds to 100.0% on the Fibonacci scale, would signal the market's readiness to complete the construction of wave 2 or b. In this case, I advise new sales. Initially, be cautious, as wave 2 or b may take on a more complex form, and this week, the ECB's meeting is taking place.
On a larger wave scale, the wave analysis of the ascending trend has taken on an extended form, but it is likely complete. We have seen five upward waves, which are likely a structure of a-b-c-d-e. The pair then built four three-wave structures: two downward and two upward. Now, it has probably entered the stage of constructing another extended downward three-wave structure.