FX.co ★ Analysis of EUR/USD pair on July 4th. The dollar falls again as America celebrates Independence Day

The wave pattern on the 4-hour chart for the EUR/USD remains unchanged. Currently, we observe the formation of the supposed wave 3 in 3 or c of the downtrend section. If this is indeed the case, the decline in quotes will continue for quite some time, as the first wave of this section ended around the level of 1.0450. Consequently, the third wave of this trend section should conclude lower, even if it takes a non-impulsive form.

The level of 1.0450 is the target only for the third wave. If the current downward section of the trend takes on an impulsive form, then we are looking at a total of five waves, and the euro could fall below the 1.0000 mark. Undoubtedly, it isn't easy to expect such developments right now, but there have been plenty of surprises in the forex market over the years.

An alternative scenario now is to transform wave 3 or c into a corrective form with five waves of the a-b-c-d-e type. Even in this case, the low of wave 3 or c should be below the low of wave 1 or a. Therefore, if wave e in 3 or c is currently forming and not 3 in 3 or c, the instrument's decline should continue.

Two Stumbling Blocks for the US Dollar

The EUR/USD rate fell by 40 basis points on Thursday. For the third consecutive day, demand for the US currency has been declining, but its total drop is still no more than 100 points. Such a movement is not enough to dismiss the dollar. This week, most US reports disappointed market participants. Specifically, the ISM indices showed weaker values than expected. The ADP report was also disappointing. However, if you carefully examine these reports, I cannot conclude that American statistics have completely failed.

The ISM manufacturing activity index was only a few tenths of a point below expectations. The ADP report showed 10,000 fewer jobs created than expected. It's clear to everyone watching the market that a deviation of 10,000 is neither significant nor substantial. It's merely a margin of error. Meanwhile, the number of JOLT job openings exceeded expectations. Therefore, this week's US economic data has not failed.

Yesterday, the ADP and ISM reports tripped up the dollar, but the market was also eager to increase demand for the euro. The wave pattern has not changed due to these movements. Only the internal wave pattern is becoming more complex and extended. Currently, sellers and buyers need more grounds to move the instrument down or up confidently. Therefore, we observe a sluggish tug-of-war with a slight advantage for the sellers.

General Conclusions

Based on the analysis of EUR/USD, the construction of the downward wave set continues. In the near future, I expect the continuation of the construction of the descending wave 3 or c with a significant decline in the instrument. I continue to consider only sales with targets around the estimated level of 1.0462. The internal wave pattern of wave 3 or c may take a five-wave corrective form, but even in this case, quotes should drop to the area of 4-5 figures.

On a larger wave scale, it is visible that the supposed wave 2 or b, which by length made up more than 76.4% of the Fibonacci of the first wave, may be complete. If this is indeed the case, the scenario of building wave 3 or c and reducing the instrument below the 4th figure continues to unfold.

Basic Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play out; they often change.
2. If there is certainty about what is happening in the market, it is better to avoid entering it.
3. There is never 100% certainty about the direction of movement. Always use Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.