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The wave count on the 4-hour chart for EUR/USD is becoming more complex. There is still no question of invalidating the bullish trend segment (lower chart), which began in January last year. On the contrary, we have seen a complete A-B-C corrective structure, which has most likely been completed. We never saw a convincing wave 5 within wave C. This wave took a truncated form, which also occurs from time to time. Let me remind you that classic wave structures are generally found only in textbooks. In real-world markets, traders and analysts need to be more flexible in their analysis. Therefore, I have been saying in my reviews for a month now that traders should prepare for a rise in the European currency. If the current wave count is correct, the instrument is at the very beginning of a new bullish trend segment.
On the lower time frame, I can identify a classic five-wave bearish structure with a truncated wave 5. I had considered the possibility that the European currency would decline to the 1.13 level, but the fundamental backdrop turned against the dollar, and the sellers simply lacked the strength to form a convincing wave 5. Therefore, we can consider July 28 to be the starting point of a new bullish wave sequence.
The EUR/USD pair rose by 45 points on Wednesday and may gain even more by the end of the day. As I expected, a bullish impulsive trend segment has begun to form, so any rise in the current circumstances is justified. This time, only geopolitical developments or a sharp shift in Kevin Warsh's monetary policy stance could prevent the euro from rising. Can we count on at least one of these two scenarios?
In my view, the probability of either of the above scenarios materializing is extremely low. Neither Iran nor the United States is seeking to resume a full-scale war, while Donald Trump has even begun following a strategy of "waiting for Iran's economic collapse." Iran's threats to break the U.S. naval blockade have also not been backed by any concrete action so far. I would not rule out an attempt by Tehran to lift the blockade by force, but I do not think much will come of it. In any case, a new war is unlikely in the near term.
A scenario involving a sharp shift toward tighter monetary policy at the Fed appears even less likely. At present, according to the CME FedWatch tool, the probability of a rate hike in September has already fallen to 30%, but the market's overall view on this issue remains unchanged: the Fed will implement one or two rounds of monetary policy tightening by the end of the year. In my view, this expectation is incorrect, as the current economic data do not suggest that even a single round of tightening is necessary. Of course, the situation can change and depends to a large extent on geopolitical developments, which are extremely difficult to predict. But in that case, I do not understand what the market is basing its hawkish scenario on. I believe that hawkish expectations will continue to fade, and the U.S. dollar will lose demand accordingly, which is fully consistent with the current wave count.
Based on my EUR/USD analysis, I conclude that the instrument remains within a bullish trend segment (lower chart) and, in the shorter term, has presumably transitioned to a new bullish wave sequence. In my view, this is an excellent time to build long positions. Unless the bearish trend segment that began on January 28 develops into a more extended five-wave structure—which would require a strong fundamental backdrop in favor of the dollar—EUR/USD is at the very beginning of a new, prolonged bullish trend segment, with targets extending as high as the 1.25 level.
On the higher time frame, a bullish trend segment can be seen, followed by the development of a corrective wave sequence. The A-B-C structure is presumably complete. If so, a new impulsive bullish trend segment has begun to form.
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