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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 canceling the upward trend segment (lower chart), which began in January of last year. On the contrary, we have seen a complete A-B-C corrective structure, which may be nearing completion. However, recent developments related to the Fed and its policy have once again affected the current wave structure, making the wave count more complex. I would like to remind you that the news backdrop and wave count often conflict with each other, making adjustments necessary.
The wave count has now transformed into a more complex structure. Wave C has taken a three-wave form, while the next wave is identified as wave D. The entire trend segment that began on January 27 may have taken the corrective five-wave form A-B-C-D-E. If this assumption is correct, wave D has been completed, and on August 21, EUR/USD entered the phase of forming wave E, the low of which should be below the low of wave C at 1.1325. The pair has only a short distance to cover before reaching this level; below it, wave E could complete its formation at any time.
The EUR/USD pair declined by 20 basis points during Monday's trading session. The range of price movements was low today, but even in the absence of significant news, the market continued buying the U.S. currency. In my view, no further evidence is required to show that the current rise in the dollar is not related to the FOMC's monetary policy tightening. The U.S. dollar has now been rising for the fourth consecutive week, and no one can still claim that it is appreciating because of stronger market expectations of a hawkish shift in the Fed's policy. Incidentally, on Monday, the market found a new reason to increase demand for the U.S. currency. Over the weekend, it became known that Donald Trump had rejected Iran's peace plan, which initially had little chance of success. On Monday, market participants therefore "quite predictably" priced in the deterioration in the geopolitical situation and the failure of the negotiations. This was approximately the twentieth time that negotiations had failed. You can judge for yourself how significant a reason this was for another rise in the U.S. currency.
In my view, EUR/USD continues to decline because the bears are currently strong, and they do not need support from the news backdrop to maintain their strength. The pair is seeking to complete at least a three-wave structure on the lower timeframe and wave E on the higher timeframe. This morning, I said that below the 1.1325 level, wave E could complete its formation at any time. However, it could just as well continue forming for an indefinite period. Are there reasons for the market to move several hundred points lower? In my view, there were no such reasons even a week ago.
Based on my analysis of EUR/USD, I conclude that the pair remains within the global corrective trend segment A-B-C-D-E. If this assumption is correct, the decline will continue toward targets below the low of wave C at 1.1325. I considered this scenario an alternative one, and if it had not been for the Fed meeting, it would have remained a backup scenario. But the Fed delivered a surprise, leaving the market with no other option than another wave of U.S. dollar buying. However, buying has continued for several weeks, even though the dollar has no new supporting factors. I would not open short positions against such a news backdrop; instead, I would prepare for a reversal.
On the higher timeframe, a downward trend segment can be seen, taking the form of A-B-C-D-E. Therefore, EUR/USD may continue declining below the low of wave C, while the internal wave structure of wave E may take a five-wave impulsive form.
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