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The wave pattern on the 4-hour chart for EUR/USD continues to evolve. There is still no indication that the upward trend segment (shown in the lower chart), which began in January of last year, has been invalidated. However, its wave structure has now taken on a corrective form. From a long-term perspective, wave C is expected to develop, with its low positioned below the low of wave A. At present, wave C has already moved below the low of wave A, meaning it could be completed at any time. Nevertheless, if the fundamental backdrop remains favorable for the U.S. dollar, this wave could extend significantly further.
On the lower time frame, I can identify a classic five-wave bearish structure. If this interpretation is correct, the market is currently forming wave 4, while wave 3 has developed into a five-wave pattern. Once this structure is complete, the pair may begin a new upward wave sequence. However, based on the current wave count, wave 5 still needs to form. Therefore, the euro could decline toward the 1.13 level.
The EUR/USD pair remained virtually unchanged throughout Wednesday's session. The pair has been trading sideways for more than two weeks, so the low volatility and frequent changes in direction do not seem unusual. The market is either waiting for new meaningful information or simply taking a pause. Either way, price action remains subdued, and even this week's important economic releases have failed to stimulate stronger market activity.
It is worth recalling that yesterday's U.S. inflation report for June could easily have triggered a decline of around 100 points in the dollar. Both headline and core inflation came in weaker than expected. During his testimony before the U.S. Congress, Kevin Warsh did not signal an imminent interest rate hike and offered no new or significant guidance, which personally did not surprise me. From the outset, Warsh has adopted a cautious communication strategy that avoids revealing the Federal Reserve's future policy intentions. Taken together, the inflation data suggested that the Fed's stance may not be as hawkish as markets currently assume. At the same time, Warsh's remarks failed to provide additional support for buyers of the U.S. dollar. Therefore, the U.S. currency had every reason to weaken significantly yesterday.
Today's Producer Price Index (PPI) report also confirmed that price pressures are easing. Producer prices declined by 0.3% month-on-month in June, whereas the market had expected no change. Consequently, demand for the U.S. dollar should have weakened again today. It did decline, but before the PPI release the dollar had already strengthened without any obvious catalyst. As a result, three important developments over the past two days all pointed toward a weaker dollar, yet between those events the U.S. currency appreciated for no clear reason. Overall, the net result has been virtually no change, and the sideways trading range remains intact.
Based on my EUR/USD analysis, I conclude that the pair remains within a long-term upward trend segment (shown in the lower chart), while the short-term trend remains bearish. In my view, the current environment is becoming increasingly favorable for building long positions. However, the pair could still decline toward the 1.13 level as part of wave 5 within wave C. Since wave structures often evolve unexpectedly, I would already begin preparing for future buying opportunities.
On the higher time frame, the previous upward trend segment was followed by the development of a corrective wave structure. In the near term, wave C is expected to continue forming, with downside targets around 1.1352, corresponding to the 38.2% Fibonacci retracement. Once the A-B-C corrective structure is complete, a new long-term bullish trend may begin.
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