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The wave pattern on the 4-hour chart for EUR/USD has transformed into a bullish structure. I believe there is little doubt that this transformation was triggered solely by the new U.S. trade policy. Prior to February 28, when the U.S. dollar began to sharply depreciate, the entire wave structure looked like a convincing bearish trend segment. A corrective wave 2 was being built. However, Trump's weekly announcements of various tariffs did their job. Demand for the U.S. dollar began to plummet, and now the entire trend segment beginning on January 13 has taken on a bullish impulsive shape.
Furthermore, the market did not even manage to form a convincing wave 2 within this segment. Only a small pullback was observed, which is smaller in size than the corrective waves within wave 1. However, the U.S. dollar may continue its decline unless Donald Trump completely reverses his adopted trade policy. We've already seen how the news backdrop altered the wave structure once — it could happen again.
The EUR/USD rate declined by 75 basis points over Wednesday and Thursday, which might give the impression that the market reacted appropriately to the FOMC meeting. But that's only an illusion. After the meeting results were announced on Wednesday evening, the dollar gained just 35 points by midday Thursday. It's hard to consider such a move as a logical reaction to Jerome Powell's rather important statements.
And there were many important statements. In fact, what Powell didn't say might have mattered even more. Firstly, it's worth highlighting that the Fed Chair did not give in to Trump's ongoing pressure to lower interest rates. This is nothing new — even the Fed itself is now used to these calls and threats. Powell once again made it clear that the President and the U.S. government have their own agenda, and the Fed has a completely separate mandate. If the current system doesn't suit someone, first the country's laws need to change — only then can anyone instruct the Fed on what to do.
Powell and his colleagues didn't cut rates, as global economic uncertainty remains high, with elevated risks of inflation and economic decline. However, Powell focuses less on the economy and more on inflation, which he has committed to returning to the 2% target.
Given that Trump's tariffs may trigger higher inflation, one could even say that Powell retaliated. Trump creates problems for the Fed by making it harder and longer to reach the 2% inflation target, and Powell is not inclined to fix issues born from Trump's personal motivations disguised as "national interests." Since the Fed rate remains unchanged, the dollar's exchange rate has also barely moved.
Based on this EUR/USD analysis, I conclude that the instrument is continuing to build a bullish trend segment. In the near term, the wave structure will be entirely dependent on the stance and actions of the U.S. President — this must always be kept in mind. Wave 3 of the bullish trend segment has begun, and its targets may extend up to the 1.25 area. Their achievement will depend solely on Trump's policies. For now, it can be assumed that wave 2 of 3 is nearing completion. Accordingly, I consider buying with targets above 1.1572, which corresponds to 423.6% on the Fibonacci scale.
On the higher wave scale, the wave markup has also transformed into a bullish one. We are likely facing a long-term upward wave sequence, but news directly from Donald Trump can still turn everything upside down again.
Key Principles of My Analysis:
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