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The European currency approaches the new week with hopes for a bright future. The downward segment of the trend is extending, while the market is ignoring many positive factors for the euro. Undoubtedly, their interpretation can be twofold, but I believe that the demand for the U.S. dollar is growing without clear justification. We should remember that the European Central Bank has already conducted the first round of monetary policy tightening, and the geopolitical conflict in the Middle East is gradually approaching its full resolution.
Currently, a factor that may weigh on the euro is the ECB's softened stance on further tightening. Last week, it became known that inflation in the Eurozone slowed to 2.8%, which calls into question the necessity of another round of rate hikes. Demand for the euro has been low in recent weeks, even amid the resolution of the conflict in Iran and the ECB's rate hikes. If the ECB officially abandons the tightening vector, it could further worsen the euro's appeal.
On the other hand, the market has already priced in all available factors for buying the dollar. The only remaining factor is the wave analysis, which suggests the formation of another wave. Next week, there will be a few important events in the European Union. On Monday, reports on retail sales and the producer price index will be released, along with a speech from Christine Lagarde. She delivered three speeches last week, and during one of them, market participants noted a softening of the hawkish tone. The softer the ECB president's stance, the weaker the euro may appear.
On Tuesday, industrial production data will be released in Germany, and on Friday, the final inflation assessment for June will be published. Therefore, next week may be quite dull, as there are also very few significant events scheduled in the U.S.
Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward segment of the trend, while in a more short-term perspective, it is within a downward segment of the trend. In my opinion, it is a good time to try to form long positions, but the instrument may drop to the 13th figure within wave 5 in C. However, wave analysis often brings surprises, so I would start adjusting towards buying now.
The wave picture for the GBP/USD instrument has become quite complex. Currently, the instrument has formed three waves down, while EUR/USD could have 5 waves. Thus, the British pound may also build another wave down, similar to the euro, but this wave could be the second within a new upward segment of the trend. Therefore, there will be divergence in the wave markings of the euro and pound, but it will be insignificant. Based on this, I expect a downward pullback in the near term, which will be followed by the formation of a new upward segment of the trend, with initial targets around the 37-38 figures.
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