29.09.202607:50 Forex Analysis & Reviews: EUR/USD Analysis – September 29: The Dollar's Upward Trend Continues

The wave structure of 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 last year. On the contrary, we have seen a complete A-B-C corrective structure, which may be finished. However, recent events related to the Federal Reserve and its policy have once again affected the current wave structure, making it more complex. Let me remind you that the news background and wave structure often conflict with each other, making adjustments necessary.

The wave structure has now transformed into a more complex one. 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 form of a five-wave corrective structure 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, whose low should be below the low of wave C at 1.1325. The pair has very little distance left to cover before reaching this level; below it, the presumed wave E may complete its formation at any time.

There is no news, but traders are not bored.

The EUR/USD pair declined by 20 points during Monday's trading session. The range of movements was low, but even in the absence of significant news, the market continued to buy the U.S. currency. A 20-point increase is not much for the dollar, but when the increase occurs every day, the cumulative move becomes significant. Overall, market participants currently see no reason to stop buying the U.S. currency. The dollar is rising, and why it is rising does not matter. It is possible to make a good profit from its rise, so it does not matter exactly why it is rising. In my view, such market movements are not the best conditions for traders because it is completely unclear what to expect next. The U.S. currency has now been rising for almost a month, with corrections occurring very rarely and despite highly ambiguous supporting factors. But how much longer can the dollar continue to rise if the news-based support for it is highly contradictory? Surely, traders should not buy the dollar simply because it has been rising for a month!

By and large, at present we can rely only on the higher-timeframe wave structure. Since the market has decided to build another global downward wave, its low should therefore be below the low of the previous wave, C. Consequently, the price should fall below 1.1325. However, after that, the formation of wave E may end at any time if no new compelling reasons emerge for the market to continue buying the U.S. currency. What could these reasons be? A new war, a resumption of the war in the Middle East, a defeat of the Republican Party in the congressional elections, or an even more hawkish stance by the Federal Reserve on monetary policy. I cannot say that the events listed above are impossible, but at the current time they are unlikely. In the 1.1200–1.1300 level, I will expect wave E to be completed.

General conclusions.

Based on the EUR/USD analysis, I conclude that the pair remains within the framework of a global corrective trend segment A-B-C-D-E. If this assumption is correct, the decline in the exchange rate 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 Federal Reserve meeting, it would have remained so — a reserve scenario. However, the Fed delivered a surprise, leaving the market with no other options but to begin another wave of U.S. dollar purchases. However, these purchases have already continued for several weeks, although there are no new supporting factors for the dollar. I would not open short positions against such a news background; 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. Consequently, EUR/USD may continue to decline below the low of wave C, while the internal wave structure of wave E may take the form of a five-wave impulse.

The main principles of my analysis:

1. Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often involve changes.
2. If there is no confidence in what is happening in the market, it is better not to enter the market.
3. There can never be 100% certainty about the direction of a price move. Do not forget to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.