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The wave pattern of the 4-hour chart for the EUR/USD pair is still unchanged. However, during today's trading session the instrument quotations rose slightly and broke the previous peak of the anticipated wave d. Thus, either the d wave should be considered lengthened, implying its soon completion, or the entire wave from November 24 should be considered as the first wave of the new uptrend section. I still believe that the current wave is corrective rather than impulse as evidenced by its complex internal wave structure. Therefore, it cannot be wave 1 of a new uptrend section. If so, the quotes' decline will resume within the anticipated wave e in C. At the same time, further rise of the EU currency quotes may result in the necessity to correct the current wave pattern as in this case wave d will become the longest wave in the descending trend section. A failed attempt to break the level of 1.1455 might lead to the withdrawal of the price from the highs it reached. However, will it lead to the formation of the wave e in C?
The EUR/USD instrument gained 50 basis points on Wednesday after the US inflation report for December was released. The consumer price index has already accelerated to 7.0% on a yearly basis. The core CPI except for food and energy increased to 5.5% y/y. Therefore, US prices are rising for all commodities from food to real estate and raw materials. Federal Reserve Chairman Jerome Powell spoke in the Senate the day before yesterday and promised to take measures to ease inflationary pressure. However, so far these measures are not enough even to stop the acceleration. Currently, inflation hits a 40 year-high. Powell noted that in 2022 selling off the securities, which have accumulated on the Fed's balance sheet over the last two years, could start. It should be effective in conjunction with a rate hike against inflation. However, interest rates could be raised no earlier than in March according to an optimistic outlook. Meanwhile, Powell expects recovery of the supply chain. He considers it to be the main cause of high inflation. Production has suffered globally due to the COVID-19 pandemic, resulting in unmet demand, as in many countries consumer stocks have risen during the pandemic. Currently, the situation has improved slightly since the Delta variant. Many people have rushed to buy a variety of goods, however they are faced with shortages. It is the reason together with rising energy prices and the massive monetary stimulus of the last two years why inflation hits record highs. This situation is common to the US, as well as the EU and the UK, where consumer price indices have already accelerated to 5% y/y and are not going to decline.
Based on the analysis, I conclude that the formation of the descending wave C may be completed. However, the internal wave structure of this wave still allows for the formation of one more downward, internal wave. Therefore, I recommend selling the instrument with the targets located near 1.1152, if there is a failed attempt to break 1.1455, which equates to 76.4% Fibonacci.
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