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22.05.202419:20 Forex Analysis & Reviews: Analysis of the EUR/USD pair on May 22nd

The wave pattern on the 4-hour chart for EUR/USD remains unchanged. Currently, we are observing the construction of the presumed wave 3 in 3 or C of a downward trend. If this is the case, the decline in the quote will continue for quite some time, as the first wave of this segment was completed at around the level of 1.0450. Consequently, the third wave of this trend should end lower.

The target for the third wave is 1.0450. If the current downward trend turns out to be impulsive, we can expect five waves, and the euro may fall below the 1.0000 mark. While such a development seems unlikely now, the currency market has often surprised us in recent years. Anything is possible.

Is there a possibility of a change in the wave pattern? It always exists. However, if we have been observing a new upward trend since October 3 of last year, the previous downward wave does not fit any structure. Therefore, an upward trend is possible only with a significant complication of the wave pattern. In recent weeks, the instrument has only been rising, threatening the integrity of the wave picture.

The 1.0880 Mark Held Back Buyers

The EUR/USD rate fell by 20 basis points on Wednesday, dropping 70 points from the recent peak. More is needed to consider the last upward wave complete. However, the quote decline began, and the 1.0880 mark held back further increases. Therefore, now is a very opportune moment for forming a new downward wave in wave 3 or C. If this assumption is correct, the decline in the quote will continue to at least the 1.0500 level.

Today, Christine Lagarde's speech was the catalyst for the drop in demand for the euro. Ahead of the ECB meeting, which will take place in two weeks, Ms Lagarde stated that inflation is controlled and very close to the target. This allows the regulator to start lowering interest rates in June. This is the first time the ECB head has openly stated the readiness to begin easing monetary policy in the first month of summer. The market reacted with decreased demand for the euro, which may mark the beginning of a "big fall." I have already mentioned that a significant divergence between the ECB and the Fed rates is emerging, which may only intensify throughout 2024. This factor is the most important for the market and the current wave pattern, which still suggests a quote decline.

General Conclusions

Based on the analysis of EUR/USD, the formation of the downward wave pattern continues. Shortly, I expect the resumption of the impulsive downward wave 3 in 3 or C with a significant decline in the instrument. I anticipate a favorable moment for new sales with targets around the estimated level of 1.0462. According to Fibonacci, an unsuccessful attempt to break through the 1.0880 mark, which equates to 61.8%, may indicate the market's readiness for new sales.

On a larger wave scale, it is visible that the presumed wave 2 or B, which exceeded 61.8% in length according to Fibonacci from the first wave, may be complete. If this is the case, the scenario of forming wave 3 or C and reducing the instrument below the 1.0400 level has begun to unfold.

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 there is no certainty in the market situation, it is better to stay out.
  3. Absolute certainty in the direction of movement does not exist and never will. Always use protective stop-loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

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