FX.co ★ EUR/USD analysis on October 22, 2022

The wave marking of the 4-hour chart for the euro/dollar instrument still does not require adjustments, but it is undoubtedly becoming more complicated. It may become more complicated than ever in the future. We saw the completion of the construction of the next five-wave impulse descending wave structure, then one upward correction wave (marked with a bold line), after which the low waves of 5 were updated. These movements allow me to conclude that the pattern of five months ago was repeated when the 5-wave structure down was completed in the same way, one wave up, and we saw five more waves down. There has been no talk of any classical wave structure (5 trend waves, 3 correction waves) for a long time. The news background is such that the market even builds single corrective waves with great reluctance. Thus, in such circumstances, I cannot predict the end of the downward trend segment. We can still observe for a very long time the picture of "a strong wave down-a weak corrective wave up." Even now, when the construction of a new upward wave seems to have begun, which may well be 3 as part of a new upward trend section, the entire wave marking can transform into a downward one, and the waves built after October 4 will be waves 1 and 2 in 3.

How much will the European regulator raise the rate?

The Euro/Dollar instrument rose by 80 basis points on Friday and is getting closer to starting to build an upward trend segment after all. The euro is growing hard and painfully, but the current wave marking looks more and more like the third rising wave will still be built. Another thing is that it may turn out to be a wave c as part of the usual correction, after which the construction of a downward trend section will resume. As I have already said, it isn't easy to believe in the strong growth of the euro now. However, in the case of an upward wave, the wave markings of the euro and the pound will coincide, which is not bad.

The ECB will hold a regular meeting next week, during which the market expects that rates will be raised by 50–75 basis points. From my point of view, an increase of less than 75 points will not increase the demand for the euro or increase it slightly. Moreover, the question matters: how much more will the ECB raise the rate? Economists agree (and Christine Lagarde said this earlier) that there will be two more rate hikes, in November and December, totaling 125 points. Thus, the rate may increase to 2.5% by 2023. I think this is too low a value for inflation to start returning to 2%. The 2.5% rate is a "neutral" rate, at which no pressure is created on the economy, but demand does not fall significantly. Therefore, a strong slowdown in inflation should not be expected in the coming months. Consequently, the euro currency will not receive the necessary background to build a full-fledged upward trend.

General conclusions.

Based on the analysis, I conclude that the construction of an upward trend section has begun. At this time, the instrument can build a new impulse wave, so I advise buying with targets above the calculated mark of 0.9993, which equates to 323.6% by Fibonacci and by MACD reversals "up." I urge caution since it is not clear how long the upward section of the trend will last and whether it will transform into a downward one.

At the higher wave scale, the wave marking of the descending trend segment becomes noticeably more complicated and lengthens. It can take on almost any length, so I think it's best to isolate the three and five-wave standard structures from the overall picture and work on them. One of these five waves has just been completed, and a new one has begun its construction.