FX.co ★ Analysis of EUR/USD on February 2, 2024

The euro/dollar pair's exchange rate increased by 60 basis points on Thursday and decreased by 60 points on Friday (the day is not yet over). The wave analysis of the 4-hour chart for the euro/dollar pair remains unchanged. Over the past year, we have seen only three-wave structures that constantly alternate with each other. Currently, the construction of another three-wave structure is underway – a downtrend. The assumed wave 1 is completed, but wave 2 or b has complicated three or four times, and there are no guarantees that it will not be complicated again.

Although the news background cannot be considered "supportive of the European currency," the market regularly finds reasons to increase demand for the euro. This situation does not reflect the real picture in the foreign exchange market. The upward trend segment may resume, but its internal structure will become unreadable.

The internal wave marking of the assumed wave 2 or b has changed. Since the last downtrend wave was disproportionately large, I now interpret it as wave b. If this is the case, wave 3 or c is currently being built, and the entire wave 2 or b is completed. The current pullback from the reached highs looks convincing.

The US labor market once again confirmed its strength. The euro/dollar pair's exchange rate increased by 60 basis points on Thursday and decreased by 60 on Friday (and the day is not yet over!). Yesterday, I needed help understanding the market's increased demand for the European currency. The results of the Bank of England meeting (which, most likely, caused the rise of the euro and pound) were not "hawkish" enough for the market to start increasing demand for the pair. Nevertheless, we saw exactly such a movement that raised many questions. Perhaps buyers decided to seize the initiative in the market and used the Bank of England meeting as a formal reason for this. In addition to yesterday's meeting, there was an inflation report in the European Union and the ISM Manufacturing Purchasing Managers' Index for the US. Neither the first nor the second report implied a decline in the dollar.

But today, when it became known, the number of new jobs created in the US (Nonfarm Payrolls) was 353 thousand, with market expectations of +180 thousand. Demand for the US currency sharply increased, and the US currency has already played back most of its losses of the past days. This is fair, and by the end of this week, the American currency did not receive more than earned.

Based on the above, the construction of a downtrend continues, although there were significant doubts about this just yesterday. Now, it is necessary to successfully break through the level of 1.0786, which corresponds to 76.4% according to Fibonacci, and the path further down is open. In the near future, I expect a decline in the pair quotes to the 1.06 level, far from the limit of possible depreciation of the Eurozone currency.

General Conclusions

Based on the conducted analysis, I conclude that the construction of a bearish wave set continues. Wave 2 or b has taken on a completed form, so in the near future, I expect to continue building an impulsive downward wave 3 or c with a significant decline in the pair. The unsuccessful attempt to break through the level of 1.1125, corresponding to 23.6% according to Fibonacci, indicated the market's readiness for sales a month ago. I am considering only sales with targets around the calculated level of 1.0462, corresponding to 127.2% according to Fibonacci.

On a larger wave scale, the assumed wave 2 or b, which in length is already more than 61.8% from the first wave, according to Fibonacci, may be completed. If this is the case, the scenario with the construction of wave 3 or c and a decrease in the pair below the 1.04 level has begun to unfold.