02.04.2024 05:54 PM
Analysis of EUR/USD. April 2nd. ISM index allowed the market to move in the right direction

The wave analysis of the 4-hour chart for the EUR/USD pair remains unchanged. At the moment, we observe the construction of the presumed wave 3 in 3 or c of the downtrend segment. If this is indeed the case, the decline in quotes will continue for a very long time, as the first wave of this segment completed its formation around the 1.0450 mark. Therefore, the third wave of this trend segment should end even lower.

The market continues to reduce demand for the euro at a very slow pace, as if doubting its actions, although the news background fully supports the US dollar. An unsuccessful attempt to break through the 1.0955 mark, which is equivalent to 61.8% according to Fibonacci, indicated the completion of the construction of wave 2 in 3 or c. Therefore, the pair has the potential for decline, and it is significant.

Is there a probability of a different wave analysis? Yes, it always exists. However, if since October 3rd of last year, we have observed a new uptrend segment, then the previous downtrend wave does not fit into any structure, which cannot be. Therefore, an uptrend segment is possible only with a significant complication of the wave analysis.

The euro maintains a weak downtrend.

The EUR/USD pair decreased by 50 basis points on Monday and increased by 6 points today. Yesterday, the ISM Manufacturing PMI in the US favored sellers, and today - nothing. In brief, I note that the ISM index rose in March more than the market expected and returned above the key 50.0 mark. Therefore, the demand for the US currency increased, not just because of the report's release.

Today, the Consumer Price Index in Germany for March was released, showing exactly the value that the market expected. 2.2% in March and a decrease compared to February immediately by 0.3% in annual terms. The core inflation decreased to 2.3% year-on-year. These two indices suggest a decline in inflation in other countries of the European Union as well. Obviously, somewhere, it will slow down more slowly, but the overall trajectory of the slowdown remains. Therefore, there is no reason to expect the postponement of the first easing of the ECB's monetary policy to a later date.

Everything is heading towards the first rate cut happening in June. Today we haven't seen the decline of the euro (yet) only because inflation in Germany decreased as expected. If it had slowed down to 2.0–2.1%, the market would have continued to sell the pair, as in this case, the ECB could decide to cut rates even in April. But that didn't happen. But there is no good news for the euro either.

General Conclusions.

Based on the analysis of EUR/USD, the construction of a downtrend wave set continues. Waves 2 or b and 2 in 3 or c are completed, so I expect the continuation of the construction of the impulsive downtrend wave 3 in 3 or c with a significant decrease in the pair. I continue to consider sales with targets located around the calculated mark of 1.0462, which corresponds to 127.2%, according to Fibonacci.

On the larger wave scale, it is evident that the presumed wave 2 or b, which in length exceeded 61.8% according to Fibonacci from the first wave, may be completed. If this is indeed the case, then the scenario with the construction of wave 3 or c and the decline of the pair below the 1.4 figure has begun to unfold.

The main principles of my analysis:

  1. Wave structures should be simple and understandable. Complex structures are difficult to play with; they often bring changes.
  2. If there is confidence in what is happening in the market, it is better to avoid entering it.
  3. There is no 100% certainty in the direction of movement, and it can never be. Remember protective stop-loss orders.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
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