07.05.202519:51 Forex Analysis & Reviews: EUR/USD Analysis on May 7, 2025

The wave pattern on the 4-hour chart for EUR/USD has transformed into a bullish structure. I believe there's little doubt that this transformation has occurred solely due to the new U.S. trade policy. Until February 28, when the sharp decline of the U.S. dollar began, the entire wave structure looked like a convincing bearish trend segment with a corrective wave 2 in progress. However, President Trump's weekly announcements of various tariffs have had a profound effect. Demand for the U.S. dollar began to plummet, and the entire trend segment that started on January 13 now appears to be an impulsive upward wave.

Moreover, the market didn't even manage to form a convincing wave 2 within this trend segment. We only saw a minor pullback, smaller than the corrective waves within wave 1. That said, the U.S. dollar could continue to decline unless Donald Trump reverses his trade policy course entirely. We've already seen one case where news fundamentally changed the wave structure. A second occurrence is also possible.

The EUR/USD rate has increased by 60 basis points over the past three trading days, suggesting that corrective wave 2 may be nearing its end. As a reminder, news sentiment supports the U.S. dollar only about 10% of the time, which is why the currency continues to decline. Even on days when Trump takes a more conciliatory tone, demand for the dollar does not improve. The market no longer believes in the president's grand promises, as it sees the objective reality of where the American economy has landed after just three months of Republican leadership. For attitudes toward the dollar and U.S. assets to shift, the market must see concrete steps from Trump to resolve the crisis he has created.

This evening, market participants will closely watch the outcome of the third Federal Reserve meeting of the year. It is widely expected that the Fed will leave interest rates unchanged as it waits for a clearer picture of the impact of Trump's tariffs and seeks to more accurately assess their effect on the U.S. economy. The negative impact is undeniable, but its scale remains uncertain. As such, the main point of interest this evening is Jerome Powell's press conference.

The Fed chair may strike either a "wait-and-see" or a "dovish" tone. In the first case, this could be due to prevailing uncertainty. In the second, it could reflect concerns about a deeper slowdown in the U.S. economy. If the Fed has concluded that Trump's tariffs might trigger a recession by 2025, announcements of monetary policy easing would not be out of the question. And for the U.S. dollar, that can mean only one thing.

Key Takeaways

Based on the current EUR/USD analysis, I conclude that the instrument continues to build out a bullish trend segment. In the near term, the wave structure will depend entirely on the stance and actions of the U.S. president. This must always be kept in mind. The formation of wave 3 in the bullish trend has begun, with targets potentially reaching as high as the 1.25 level. Achieving this depends entirely on Trump's policies. At present, wave 2 within wave 3 appears close to completion. Therefore, I consider buying with targets above the 1.1572 mark, which corresponds to the 423.6% Fibonacci level.

On the higher wave scale, the structure has also turned bullish. A long-term upward wave sequence likely lies ahead—but news flow directly from Donald Trump could flip the picture upside down once again.

My Core Analytical Principles

1. Wave structures should be simple and clear. Complex patterns are hard to trade and often undergo changes.
2. If you're unsure about what's happening in the market, it's better to stay out.
3. There is never 100% certainty in market direction. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.