FX.co ★ EUR/USD. Analysis for January 18, 2023

The wave marking on the euro/dollar instrument's 4-hour chart is still quite compelling and getting more intricate, and the entire upward segment of the trend is still quite convoluted. Although its length is better suited for the pulse portion, it has taken on a powerful corrective and extended form. The waves a-b-c-d-e have been combined into a complicated corrective structure, with wave e having a form that is far more complex than the other waves. Since the peak of wave e is substantially higher than the peak of wave C, if the wave markings are accurate, construction on this structure may be nearly finished. I'm still planning for a decline in the instrument because we are predicted to build at least three waves down in this scenario. The demand for the euro currency increased throughout the first two weeks of the year, and during this time the instrument was only able to modestly deviate from previously established levels. A further attempt to surpass the 1.0721 level, which corresponds to 127.2% of the Fibonacci ratio, was successful, allowing the wave e to grow even longer. Unfortunately, there is another delay in starting to build the trend correction part.

The euro may be supported by rate divergence up until the ECB meeting.

On Tuesday, the euro/dollar instrument had a 30 basis point decline. As a result of how small these price increases are, the current wave markup hardly changes at all. However, since the instrument's present motions are more horizontal in type and the news background is essentially nonexistent, I am unable to compare them to the instrument's current movements. Only the German inflation report might have been of interest to market players yesterday. The market was aware of the expected value because the second estimate was identical to the first. The decrease in the euro in the afternoon can be attributed to the German inflation report from the morning, but how can you account for the euro's rise in the morning? I think that the current news context shouldn't be used to explain the fluctuations of the euro. Other aspects form the basis of the market.

Since the ECB is 90% likely to hike rates by 50 basis points in February and the Fed by 25, the market has already determined, in my opinion, that there is a clear need to stimulate demand for the EU currency. As a result, for the first time in a long time, the difference between the ECB and Fed interest rates will be decreasing rather than widening. This element may encourage strong demand for the euro. If this is the case, then the response to the ECB rate hike in two weeks is already being seen. This factor may already be coming into play on the day of the European regulator's meeting, and we will observe a decline in the instrument. This decline may coincide with the completion of wave e, which has already taken on an overly extended form. If my assumption is correct, then wave 5-e is being built now. This means that the increase could break off at any time.

Conclusions in general

I conclude that the upward trend section's building is about finished based on the analysis. As a result, given that the MACD is indicating a "down" trend, it is now viable to contemplate sales with targets close to the predicted Fibonacci level of 0.9994 (323.6%). The potential for complicating and extending the upward portion of the trend remains quite strong, as does the likelihood of this happening. The market will be ready to finish the wave e when a bid to break through the 1.0950 level fails.

The wave marking of the descending trend segment notably becomes more intricate and lengthens at the higher wave scale. The a-b-c-d-e structure is most likely represented by the five upward waves we observed. After the construction of this portion is complete, work on the downward trend segment can start.