FX.co ★ Analysis of EUR/USD pair on May 31st. EU inflation supports the euro

The wave pattern on the 4-hour chart for EUR/USD remains unchanged. Currently, we are observing the construction of the proposed wave 3 in 3 or c of a downward trend segment. If this is indeed the case, the decline in quotes will continue for a considerable time, as the first wave of this segment finished around the mark of 1.0450. Therefore, the third wave of this trend segment should complete below this level.

The 1.0450 mark is the target for the third wave. If the current downward trend segment turns out to be impulsive, we could see five waves, and the euro could fall below the 1.0000 mark. Of course, it is challenging to expect such a development, but the currency market has had plenty of surprises in recent years. Anything is possible.

Could the wave pattern change? In recent weeks, the pair has only been rising, but two unsuccessful attempts to break through the 1.0880 mark, which corresponds to 61.8% by Fibonacci, could be the starting point for building wave 3 in 3 or c, which my readers have been eagerly awaiting.

The 1.0880 mark might save the dollar for the third time.

The EUR/USD rate increased by 40 basis points on Friday. The news background has been unfavorable for the US dollar for the second consecutive day. As a result, demand for the EU currency rose, and by Friday evening, the pair was again around the 1.0880 mark. A third consecutive unsuccessful attempt to break this mark again indicates the market's readiness to build a downward wave. However, as we observed this week, sellers failed to drop even below the 1.0786 mark, corresponding to 76.4% by Fibonacci, and was practically the first obstacle for the pair on its way down. Therefore, the news background hinders sellers, but the sellers themselves have so far too weak, poorly formed intentions.

The consumer price index in the European Union accelerated to 2.6% year-over-year in May, slightly higher than the market expected. Core inflation rose to 2.9%, also above market expectations. Consequently, market participants considered that the probability of an ECB rate cut in June is not 100%, and today it decreased even further. This explains the rise in the euro on Friday. However, it was not just this report that hindered the dollar this week. Yesterday, it became known that the US economic growth rate slowed to 1.3% in the first quarter. The previous estimate indicated a slowdown to 1.6%. The two most important reports this week worked against the US dollar. This explains the unsuccessful attempt to break the 1.0786 mark.

General conclusions:

Based on the analysis of EUR/USD, the construction of a downward set of waves continues. In the near future, I expect the resumption of the construction of the impulsive downward wave 3 in 3 or c with a significant decline in the pair. I consider only sales with targets around the estimated mark of 1.0462. Two unsuccessful attempts to break the 1.0880 mark, corresponding to 61.8% by Fibonacci, indicate the market's readiness for new sales. Still, the market is making a third attempt to break this level.

On the larger wave scale, the proposed wave 2 or b, which was more than 61.8% by Fibonacci of the first wave, might be completed. If this is the case, the scenario of building wave 3 or c and lowering the pair below the 4th figure has begun to materialize.

Main principles of my analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play out and often change.
2. If one does not have confidence in the market's performance, it is better not to enter it.
3. There is never 100% certainty in the direction of movement. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.