FX.co ★ Analysis for EUR/USD on September 27, 2023

The wave analysis of the 4-hour chart for the euro/dollar pair remains quite clear. Over the past year, we have seen only three-wave structures constantly alternating with each other. For the past few months, I have regularly mentioned that I expect the pair to approach the 5th figure, from which the construction of the last bullish three-wave structure began. The instrument has not yet reached the 5th figure, but it has already surpassed the 6th figure. And the first wave of the new bearish trend section is not even completed yet. Can you imagine how far the euro could fall in a few months?

None of the recent price increases resembled a full-fledged 2nd or b wave. Therefore, all of them were internal corrective waves within the 1st or a wave. If this is indeed the case, the decline in prices may continue for some time during this wave. This would mean that the overall decline of the European currency is not over yet because the construction of the third wave is still required. Within the first wave, we can already see five internal waves, so its completion is approaching. Nevertheless, the successful attempt to break through the 1.0637 level, which is equivalent to 100.0% according to Fibonacci, indicates the market's readiness for additional sales of the pair.

The euro continues to fall, regardless of the news background. The euro/dollar pair's exchange rate fell by 20 basis points on Tuesday and another 60 on Wednesday. Despite the fact that there was almost no news background yesterday and today was marked by only one report in the USA, the market continues to reduce demand for the euro and raise the dollar every day. It uses almost every opportunity and chance available. Thus, the news that the market would have simply ignored 2-3 months ago now leads to a decline in the pair. But could it be that the decline of the European currency (along with the British pound) is based on more global factors? Such as monetary policy and economic prospects? If this assumption is correct, then everything falls into place. Monetary policy remains stronger in the USA, the economy is stronger in the USA, and wave analysis implies the construction of a bearish trend section (i.e., an increase in the US currency).

Today, another member of the ECB's Governing Council, Frank Elderson, stated that interest rates could still be raised if necessary. Undoubtedly, he meant an unexpected and sharp rise in inflation in the European Union. His opinion almost completely coincides with the opinion of almost the entire monetary committee; the only difference is that some of its representatives emphasised the lack of a need to raise rates, while others allowed for tightening if a complex inflation situation arises.

General Conclusions

Based on the analysis conducted, I conclude that the construction of a bearish set of waves continues. I still consider the targets for the downward trend section in the range of 1.0500–1.0600 quite realistic, especially since there is very little left to reach them. Therefore, I continue to recommend selling the pair. Since the downward wave has not completed near the 1.0637 level, we can now expect a decline to the 5th figure and the 1.0465 level, which is equivalent to 127.2% according to Fibonacci. However, the second corrective wave will start sooner or later on this wave.

On a larger wave scale, the wave analysis of the ascending trend section has taken on an extended form, but it is likely already completed. We have seen five upward waves, which are most likely a structure of a-b-c-d-e. Then, the pair built four three-wave structures: two down and two up. Now, it has probably moved on to the stage of constructing another extended bearish three-wave structure.