12.05.202620:28 Forex Analysis & Reviews: EUR/USD Analysis – May 12th: Uncertainty Surrounds the Iran Deal

The wave pattern on the 4-hour chart for EUR/USD has changed. There is still no talk of canceling the upward trend segment (lower chart), which began in January of last year, but the trend structure now appears highly ambiguous. In such situations, I always recommend switching to a lower timeframe (upper chart) and focusing on the simplest and smallest wave structures in order to make a short-term forecast, which is more than sufficient for opening trades. Wave structures can become very complex and may imply multiple different scenarios. The easiest approach is to trade according to the standard "five-three" pattern.

In the chart above, I can identify a classic five-wave impulse structure with an extended third wave. After the completion of this structure, a corrective formation of at least three waves began. However, this structure may also take on an impulsive, five-wave form, which is entirely possible. Consequently, I now expect the development of wave 5 with targets located around the 1.1900 level. Geopolitical developments may still alter the wave count.

The EUR/USD pair fell by 40 basis points on Tuesday following new comments from US President Donald Trump regarding Iran. In particular, the White House leader stated that the deal with Iran is at risk of collapsing. Trump noted that the United States does not seek to resume war with Iran, but did not clarify what would happen if diplomacy ultimately reaches a dead end.

And it is highly likely that diplomacy will indeed fail. Let me remind you that Iran's position remains unchanged: first, the lifting of the Hormuz blockade, security guarantees, and the removal of sanctions — only then discussions on the nuclear issue. Washington's position remains directly opposite: first, Iran must completely abandon uranium enrichment and surrender all uranium stockpiles, and only afterward can other issues be discussed. One can only speculate about what negotiations have taken place over the past month if the positions of both sides have not changed at all.

However, the market is gradually beginning to assess the situation more realistically. Over recent weeks, I have repeatedly stated that the chances of a deal between Iran and the United States are extremely slim. Of course, this does not necessarily mean that war will resume in the near future, but the prospect of a prolonged conflict and an extended blockade of the Strait of Hormuz now seems almost certain.

Against the backdrop of deteriorating geopolitics, demand for the US dollar may begin rising again, though I do not believe the EUR/USD pair will fall below its March lows. However, if oil prices climb to $150 per barrel or higher, anything becomes possible. At the moment, the decline in EUR/USD is too weak to be viewed as the start of a new bearish trend segment. Moreover, Donald Trump's rhetoric changes almost daily. Tomorrow we may hear that Iran has accepted Washington's demands and that a deal is about to be signed.

General Conclusions

Based on my EUR/USD analysis, I conclude that the pair remains within a broader upward trend segment (lower chart), while in the short term it remains within a corrective structure. The corrective wave formation appears largely complete, though it could still evolve into a more complex and extended pattern. Geopolitical tensions in the Middle East may trigger further downside pressure in the near future, so caution is advised when considering long positions. For now, I continue to expect further growth toward targets around the 1.1900 level.

On the smaller timeframe, the entire bullish trend segment is visible. The wave structure is somewhat unconventional because the corrective waves differ significantly in size. For example, the higher-degree wave 2 is smaller than the internal wave 2 within wave 3. Nevertheless, such situations do occur. I would also remind traders that it is best to identify clear and understandable structures on charts rather than rigidly tying analysis to every single wave. The most recent waves are difficult to identify, so my analysis relies primarily on the higher timeframe.

Core Principles of My Analysis

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often subject to revision.
2. If there is no confidence in current market conditions, it is better to stay out of the market.
3. There can never be absolute certainty regarding market direction. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.