The US dollar ended the week with cautious optimism. The greenback strengthened against the euro and the pound, but this doesn't provide solid grounds for us to confirm further downward waves for both instruments. Without a doubt, I believe that the main scenario is that the US dollar will strengthen further. I believe that both the news background and the wave pattern suggest growth for the greenback. The market does not always trade in accordance with the wave pattern and the news background, but I rely on these two types of analysis when forecasting.
The news background has often been distorted in the market's perception lately. In my opinion, sellers could have been much more active this week, since the key news was that inflation in the US has accelerated once again. However, the dollar moderately appreciated. It is still rising in the EUR/USD instrument, so let's consider the news background from the European Union for the next five days.
The new week will start with the Eurozone inflation report for February. The final estimate of the indicator may record an annual rate of 2.6%. This is slightly higher than what the market expected, but I believe that even this figure is a very good result. Inflation in the Eurozone continues to decline, and this is crucial. The European Central Bank has less reasons to maintain its current stance on monetary policy. European policymakers will certainly not rush to cut rates, but the moment of the first rate cut in Europe is approaching, unlike the situation in the United States.
On Thursday, the flash values for the business activity indexes will be released. The market expects the Services PMI to slow down but remain slightly above the 50.2 mark. The Manufacturing PMI may dip even lower below the 50.0 mark and reach 46.5. The fact that business activity is declining indicates that the European economy is unlikely to show growth in the near future. In the last 5-6 quarters, it has managed to maintain zero growth rates and even avoid a sharp decline, but the first quarter of 2024 may paint a different picture. However, if the ECB moves to lower rates in the summer, a recession may still be avoided.
Also, this week in the EU, Christine Lagarde, Luis de Guindos, and Philip Lane will speak. Their statements may shed some more light on the timing of the ECB's rate cuts.
Wave analysis for EUR/USD:Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Wave 2 or b is complete, so in the near future, I expect an impulsive downward wave 3 or c to form with a significant decline in the instrument. An internal corrective wave is currently being formed, which could have already ended. I am considering short positions with targets around the level of 1.0462, which corresponds to 127.2% according to Fibonacci.
The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c will start sooner or later. However, unless wave 2 or b ends, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% according to Fibonacci. A successful attempt to break through the level of 1.2877, which is equivalent to 76.4% Fibonacci retracement, will indicate that the market is ready to increase the demand for the instrument. However, at this time it is futile, so the construction of wave 3 or c may have already started.
Key principles of my analysis:Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.
If you are not confident about the market's movement, it would be better not to enter it.
We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.