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

The wave pattern of the EUR/USD on the 4-hour chart has changed. Analyzing the entire trend segment that began in September 2022, when the European currency fell to 0.9530, we are now within a series of upward waves. However, within this segment, even the larger scale waves are quite difficult to distinguish. In other words, there is no clear, impulsive trend. We constantly see alternations of three- and five-wave corrective structures. Currently, the market has failed even to construct a clear downward three-wave pattern from the peak reached last July. First, there was a downward wave that overlapped the lows of previous waves, followed by a significant upward wave. Now, for the seventh consecutive month, an indistinct pattern is emerging.

Since January 2024, I have identified only two three-wave a-b-c patterns, with the turning point occurring on April 16. Therefore, the primary point to understand is that there is no trend right now. After the completion of the current wave c, the construction of a new three-wave pattern downward may begin. The trend segment from April 16 might take a five-wave form, but it would still be corrective. Under such circumstances, I do not anticipate a prolonged rise of the euro currency.

The EUR/USD rate increased by 115 basis points on Friday, and the day is not yet over. In recent weeks, I have regularly said that neither the euro nor the dollar currently has the informational potential for an impulsive trend. First, this is indicated by the wave markup, which has been building only corrective structures for a very long time. Second, the ECB has begun easing monetary policy, while the Fed has not, which puts the US currency in more favorable conditions. I also mentioned that in the last three months, American statistics on the labor market, unemployment, and business activity have often been weak. But at the same time, I kept in mind that this would not continue forever. And today, when everything seemed to be lining up in favor of the dollar, new reports on the labor market and unemployment came out.

I won't even discuss yesterday's ISM Manufacturing Business Activity Index – the market practically ignored it, but it still turned out weaker than forecasts. However, on Friday, the Nonfarm Payrolls amounted to only 114,000 against market expectations of 175,000, and the unemployment rate rose to 4.3% against forecasts of 4.1%. Clearly, these two reports had a dramatic impact on the market, causing an immediate collapse in demand for the US currency and disrupting the existing wave pattern. It's not completely broken, and the decline in the instrument may resume. But today's reports are clearly not the last negative news from America.

General Conclusions

Based on the analysis of EUR/USD, the instrument has moved to constructing a series of corrective structures. From the current positions, an increase may resume within a five-wave corrective structure. However, now, a scenario with the construction of a downward wave d is more likely. It is also possible to build a new downward (and also corrective) series of waves with targets located below the 6-figure mark if the upward wave series a-b-c remains three-wave. The instrument may reach the low of wave b. A successful attempt to break through this low will indicate a transition to constructing a downward wave set.

On a larger wave scale, it is also evident that the wave markup is becoming more complex. Probably, an ascending wave set awaits us, but its length and structure are now difficult to imagine.

Main Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play out and often carry changes.
2. If there is no confidence in what is happening in the market, it's better to avoid entering it.
3. There can never be 100% confidence in the direction of movement. Remember protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.