FX.co ★ Analysis of EUR/USD on December 20, 2023

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 that constantly alternate with each other. The construction of another three-wave pattern, a downtrend, is ongoing. The presumed waves 1 and 2 are likely completed, suggesting that the pair has moved on to building the third wave, which should lead to a decline in the pair to the 4th figure and below. The risk of complicating the assumed wave 2 or b persists because the market is unstable, and the news background can be interpreted in favor of any currency. However, I expect a resumption of the decline in euro quotes.

Regardless of the outcome of wave 2 or b (it may take an even more extended form), the overall decline of the European currency will not be completed, as in any case, the construction of the third wave of the downtrend is required. The only option is the complication of the entire wave structure of recent months into an unrecognizable state.

The market is persistent in interpreting the news background. The euro/dollar pair's exchange rate decreased by several tens of basis points on Wednesday, but it began to rise again during the American session. Unfortunately, the news background needs to better correspond to what is happening in the market. Any corrective wave can reach up to 100% of the previous impulsive wave, so within the framework of wave 2 or b, the pair can grow to the level of 1.1250. I have already mentioned that working with simple and understandable wave structures is best. Suppose the structure is constantly complicated, and the market ignores the news background. In that case, waiting until the market returns to the course of logical movements might be necessary.

Let's analyze the current situation. We saw an impulsive wave down, which signaled the completion of the upward trend. Afterward, the pair has been rising for two months, which I consider a corrective wave 2 or b. This wave has already taken on a five-wave form, meaning it should be completed. However, the market quickly reduced demand for the euro currency and increased it for the dollar. Because of this, there are high risks of complicating wave 2 or b and the entire wave analysis. Undoubtedly, such a scenario would be best avoided. The news background for the euro currency was absent on Monday, Tuesday, and practically on Wednesday. Why the euro rose yesterday is a mystery shrouded in darkness. Why the euro currency rose during the American session is still being determined. The working scenario remains unchanged for now, but there are significant risks of changing the wave analysis. A slight help to the current wave analysis can be provided by the MACD divergence – the latest indicator peak is below the previous one, and price peaks are the opposite.

General conclusions:

Based on the analysis conducted, the construction of a bearish wave set continues. Targets around the level of 1.0463 have been ideally worked out, and the unsuccessful attempt to break through this level indicated a transition to the construction of a corrective wave. Wave 2 or b has taken on a completed form, so in the near future, I expect the construction of an impulsive downward wave 3 or c with a significant decrease in the pair. I still recommend selling with targets below the low of wave 1 or a. Stop-loss orders can be placed above the peak of the presumed wave 2 or b.

On the larger wave scale, it can be seen that the construction of corrective wave 2 or b continues, which in length is already more than 61.8% according to the Fibonacci of the first wave. As I mentioned before, this is not critical, and the scenario with the construction of wave 3 or c and a decrease in the pair below the 4th figure remains in force.