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The wave pattern on the 4-hour chart has transformed into a bullish structure and remains as such. I believe there is no doubt that this transformation occurred solely due to the new U.S. trade policy. Until February 28, when the sharp decline of the U.S. dollar began, the entire wave structure looked like a convincing bearish segment, forming a corrective wave 2. However, weekly announcements by Trump regarding various tariffs did their job. Demand for the U.S. dollar plummeted, and now the entire trend segment that began on January 13 has taken on a bullish impulsive form.
The market didn't even manage to construct a convincing wave 2 within this trend segment. We only saw a small pullback, which was smaller than the corrective waves in wave 1. However, the U.S. currency may continue to decline unless Donald Trump reverses the course of his trade policy by 180 degrees — something he already demonstrated he is capable of on Monday.
The EUR/USD pair rose by 100 basis points on Monday even before the U.S. session opened. Some attributed the latest drop in the dollar to the elections in Poland and Romania, where pro-European candidates won or are leading. But I am almost certain that it all came down to a piece of news that six months ago the market would not have even noticed.
Moody's Ratings downgraded the U.S. credit rating from the highest grade to AA1. On the surface, this may seem like a mere formality. But the market reacted sharply to this development because it marks yet another deterioration in the U.S. economy within just four months of Donald Trump's presidency. Right now, the market doesn't need a major reason to sell the dollar — any excuse will do. Significant reasons are only needed to justify buying the dollar. And even when such reasons appear, they cannot outweigh the prevailing uncertainty and doubts about the future of the U.S. economy under President Trump.
Think about it: tariffs for all countries on Trump's list have been reduced to minimum levels. Generously, Trump gave countries three months to submit their trade deal proposals, after which Washington would amend, approve, or reject them. So at this point, the trade war can be said to be in the "eye of the hurricane." But the market refuses to make long-term decisions, knowing full well that at any moment the calm can give way to another storm. Given this, it's psychologically much easier to hit the "buy" button than the "sell" button.
Based on the analysis of EUR/USD, I conclude that the instrument is continuing to build a bullish trend segment. In the near term, the wave pattern will depend entirely on the stance and actions of the U.S. president — something to keep in mind at all times. Wave 3 of the bullish segment has begun to form, with targets that may extend as far as the 1.25 level. Achieving those targets depends solely on Trump's policies. At this point, it is possible that wave 2 of 3 has been completed. Therefore, I am considering long positions with targets above 1.1572, which corresponds to 423.6% on the Fibonacci scale. Keep in mind, however, that a de-escalation in the trade war could reverse the uptrend — although currently, there are no wave-based signals of such a reversal.
On the higher wave scale, the pattern has shifted to bullish. A long-term upward wave sequence is likely, but news flow from Donald Trump has the potential to turn everything upside down once again.
Core principles of my analysis:
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