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21.08.2024 06:31 PM
Analysis for EUR/USD pair on August 21: FOMC Minutes and Revisions to Nonfarm Payrolls

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The wave pattern on the 4-hour chart for EUR/USD is becoming increasingly complex. If we analyze the entire trend segment that began in September 2022, when the euro dropped to 0.9530, it appears that we are within an upward wave set. However, even within this segment, it is challenging to distinguish waves of a higher scale. In other words, there is no clear impulsive trend. We are witnessing a constant alternation of three- and five-wave corrective structures. Even now, the market hasn't managed to form a clear three-wave downward pattern from the peak reached in July of last year. First, there was a downward wave that covered the lows of previous waves, followed by a deep upward wave, and now, for seven months, the market has been forming something unclear.

Since January 2024, I can only identify two a-b-c three-wave structures with a reversal point on April 16. Therefore, the first thing to understand is that there is no trend at the moment. After the completion of the current wave c, a new three-wave downward pattern may begin to form. The trend segment from April 16 may take on a five-wave form, but it would still be corrective. Under such circumstances, I cannot believe in a prolonged rise of the euro, although it may continue for several more months.

The EUR/USD exchange rate remained unchanged on Wednesday, but "the day isn't over yet." Demand for the U.S. dollar has been decreasing for two consecutive weeks, with only a brief pause in this process last Thursday. This week, there has been no significant news background, but the market finds new reasons to sell the U.S. currency almost every day. Therefore, I wouldn't be surprised if the dollar depreciates further by the end of the day. Analysts attribute this decline in the U.S. currency to the anticipated Fed rate cuts, the threat of a recession in the U.S. economy, worsening labor market conditions, rising unemployment, and the possible victory of Donald Trump in the upcoming elections. I believe that economists are making concerted efforts to explain the continued decline of the dollar.

Today, the minutes of the July FOMC meeting will be released in the U.S., which could easily be used to further decrease demand for the dollar. No "dovish" decisions were made at the last meeting, but the FOMC is approaching the point of deciding on a rate cut. Consequently, almost any content in the minutes can be interpreted as "dovish." Over the past two weeks, the market has sold the dollar based on much more contradictory information. From a wave perspective, everything remains stable, and the construction of wave c continues.

Conclusions

Based on the analysis of EUR/USD, I conclude that the instrument continues to form a series of corrective structures. From the current position, the upward movement may continue within a five-wave corrective structure, and the scenario of forming a downward wave d has been temporarily canceled. The 1.1073 level couldn't even halt the instrument's growth for half an hour. Consequently, the upward movement may continue with targets around 1.1182, corresponding to the 161.8% Fibonacci level. The market continues to price in Fed rate cuts in September, November, December, and in 2025.

On a larger wave scale, it is also evident that the wave pattern is becoming more complex. It is likely that we are facing a new upward wave set, but its length and structure are difficult to predict at this time.

Key Principles of My Analysis:

  1. Wave structures should be simple and clear. Complex structures are difficult to trade and often undergo changes.
  2. If you are unsure of what is happening in the market, it's better to stay out of it.
  3. There is never 100% certainty in the direction of movement. Don't forget about protective Stop Loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
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