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The wave pattern on the 4-hour chart for EUR/USD has shifted into a bullish formation and remains so. There is little doubt that this transformation has occurred solely due to the new U.S. trade policy. Until February 28 — when the dollar began a steep decline — the wave structure was a clear downward trend. It was forming a corrective wave 2. However, Trump's weekly announcements of various tariffs did their job. Demand for the U.S. currency began to plummet, and the trend that began on January 13 turned into a strong upward impulse.
The market wasn't even able to construct a proper wave 2 within this uptrend. What we saw instead was a shallow pullback, smaller than any of the corrective waves within wave 1. The U.S. dollar may continue to decline — unless Donald Trump abruptly reverses his trade policy, which he is certainly capable of doing, as evidenced just this past Monday.
The EUR/USD rate gained several dozen points on Wednesday before falling by the same amount. In the first half of the day, European GDP and industrial production data lent some support to the euro — though calling that data "positive" is a stretch. Industrial production rose by 2.6% in March, beating even the most optimistic forecasts. However, it's obvious that this surge was driven by the looming (at the time) trade war with the U.S. Domestic demand began to rise as European consumers turned away from American goods and sought local alternatives. Over the last five years, European industry hasn't posted such rapid growth in a single month.
In contrast, the GDP report was more subdued. While the initial estimate showed 0.4% q/q growth in the eurozone economy, the second estimate lowered that to 0.3%. It wouldn't be surprising if the final reading is even lower. Why would eurozone GDP suddenly start growing after stagnating for three years? Since Q4 2022, the highest quarterly growth figure was just 0.4%. The conclusion is clear: the European economy remains stagnant, with virtually no real growth. Therefore, the inability of euro bulls to build on the upward impulse on Wednesday was entirely justified.
Meanwhile, the U.S. dollar still enjoys a slight edge, as the trade war shows signs of cooling. Yet once again, the wave analysis and news background are at odds — the former pointing to continued growth, the latter casting doubt.
Based on the current EUR/USD analysis, the instrument continues to build out a bullish leg of the trend. In the short term, the wave structure will depend entirely on the U.S. president's actions. That fact must be kept in mind. We are now in wave 3 of the upward trend, and its targets may reach as high as the 1.25 level. Reaching them will depend solely on Trump's policies. At present, wave 2 within wave 3 appears to be nearing completion. Thus, I continue to consider long positions with targets above 1.1572 — which corresponds to the 423.6% Fibonacci extension.
On the higher wave scale, the structure has turned bullish. We may be witnessing the formation of a long-term upward cycle. But again, the news cycle — especially from Trump — could flip everything upside down in an instant.
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