12.01.202317:31 Forex Analysis & Reviews: EUR/USD. Analysis for January 12, 2023

The wave marking of the euro/dollar instrument's 4-hour chart is still quite compelling and getting more intricate, and the entire upward segment of the trend is still quite convoluted. It now appears distinctly corrective and forcefully expanded. Waves a-b-c-d-e have been combined into a complicated corrective structure, with wave e having a form that is far more complex than the other waves. Since the peak of wave e is substantially higher than the peak of wave C, if the wave markings are accurate, construction on this structure may be nearly finished. I'm getting ready for a decrease in the instrument because, in this scenario, we are predicted to build at least three waves down. The demand for the euro currency is increasing again in the first two weeks of the year, and the instrument has only been able to modestly deviate from its prior heights during this time. A further attempt to surpass the 1.0721 level, which corresponds to 127.2% of the Fibonacci ratio, was successful, allowing the wave e to grow even longer. Unfortunately, there is another delay in starting to build the trend correction part.

US inflation has already decreased to 6.5%.

On Thursday, the euro/dollar instrument increased by 70 basis points, but today it might end at practically any price. After the release of the US inflation report for December, the majority of today's gain happened in the final hour. As the market had anticipated, the consumer price index decreased to 6.5% y/y. Even though I had been waiting, I needed a response. Let me remind you that it frequently happens that expectations and reality align, which results in a lack of reaction. But that wasn't the case today. Before the report was released, almost all analysts predicted that a significant decline in inflation might result in a decline in demand for US dollars since the likelihood of a 50 basis point rate hike in February will significantly diminish. Consequently, we observed a completely natural response from the market.

Let me also point out that there are still many unsolved uncertainties regarding ECB rates. How long the interest rate will rise is a topic that neither ECB officials nor analysts can definitively answer. At least two more significant hikes and one smaller one appear to be anticipated. However, it's unclear whether the 3.25% rate will be sufficient to return inflation to the desired level. Given that the Fed rate may stop rising in the next two to five months, logic dictates that we should anticipate a bigger rise. The current surge in demand for the euro currency becomes very reasonable if we assume that the ECB rate will climb for another six months, but I would prefer to see the development of a corrective section of the trend now, followed by a new impulse. Today's market substantially complicates wave marking, making it challenging to forecast changes. It is exceedingly challenging to figure out the internal wave structure even within wave e.

Conclusions in general

I conclude that the upward trend section's building is about finished based on the analysis. As a result, given that the MACD is indicating a "down" trend, it is now viable to contemplate sales with targets close to the predicted 0.9994 level, or 323.6% per Fibonacci. The potential for complicating and extending the upward portion of the trend remains quite strong, as does the likelihood of this happening.

The wave marking of the descending trend segment notably becomes more intricate and lengthens at the higher wave scale. The a-b-c-d-e structure is most likely represented by the five upward waves we observed. After the construction of this portion is complete, work on a downward trend segment can start.