The wave count on the 4-hour chart for EUR/USD is becoming more complex. There is still no question of invalidating the upward trend segment (lower chart), which began in January last year. On the contrary, we have seen a complete A-B-C corrective structure, which may have been completed. However, recent events related to the Federal Reserve and its policy have once again affected the current wave structure. I would note that the fundamental backdrop and wave count often conflict with each other, making adjustments necessary.
The wave count may now become more complex again. Wave C has taken a three-wave form, while the next wave is identified as wave D. The entire trend segment that began on January 27 may now take a five-wave corrective form, A-B-C-D-E. If this assumption is correct, wave D has been completed, and on August 21, EUR/USD entered the phase of forming wave E, whose low should be below the low of wave C at 1.1325. The only question that remains is whether the fundamental backdrop will support the dollar strongly enough for EUR/USD to fall below 1.1325.
The Market Has Moved on from the Fed Meeting
The EUR/USD pair rose by 10 basis points on Thursday, but declined by 100 basis points over the course of the current week. And this was solely due to yesterday's correction. If we calculate the decline from last Thursday, the euro's losses amount to 150 basis points. All of this has been driven by the single factor of the Federal Reserve's monetary policy. Once again, I would note that the factor of the ECB's readiness to tighten monetary policy was not taken into account by the foreign exchange market. The Bank of England's readiness to begin tightening monetary policy also caused the pound to decline rather than rise. Therefore, the market reacted very positively to the information about the Fed's rate hike and priced in the prospect of further policy tightening even more strongly. At the same time, it ignored similar decisions and steps by the ECB and BoE. I leave it to you to judge how justified this is and how far the dollar can go on such support.
Friday promises to be quiet and corrective. Demand for the euro declined for five full days, so most likely we will see prices move away from the lows reached today. Therefore, we can expect a modest rise in EUR/USD, even if the fundamental backdrop remains negative for the euro today. As for the longer-term outlook, it is currently more uncertain than clear. Over the past week, the market has shown that it is focused solely on the Federal Reserve's monetary policy, so demand for the U.S. currency may remain high next week. If the market regains perspective and remembers that inflation is rising not only in the United States but also in other countries around the world, while Donald Trump continues to confront those who dare to oppose him, demand for the U.S. currency will decline, and the formation of the upward trend segment that began in June will resume.
Overall Conclusions
Based on my EUR/USD analysis, I conclude that the instrument remains within the global A-B-C-D-E corrective trend segment. If this assumption is correct, the decline in prices will continue toward targets below the low of wave C at 1.1325. I considered this scenario an alternative, and if it had not been for the Fed meeting, it would have remained a reserve scenario. However, the Fed delivered a surprise, leaving the market with no other option but to launch a new wave of U.S. dollar buying. At the same time, further dollar appreciation requires new reasons. I do not see any such reasons at present. Therefore, the formation of a new upward, non-corrective wave may begin from the current levels.
On the higher timeframe, an upward trend segment can be seen, followed by the formation of an A-B-C corrective structure. This structure could take a five-wave form, but at present I consider it complete. If this is the case, the formation of a new impulsive upward trend segment has begun.
The Main Principles of My Analysis:
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