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The wave structure on the 4-hour chart for EUR/USD is becoming more complex. There is still no indication that the upward trend segment (shown in the lower chart), which began in January of last year, has been invalidated. However, the trend structure has now taken on a corrective form. From a long-term perspective, wave C is expected to develop, with its low positioned below the low of wave A. At present, the low of wave C is already below the low of wave A, meaning that wave C could be completed at any time. However, if the news backdrop remains favorable for the U.S. dollar, this wave could become much more extended.
On the lower time frame, I can identify a classic five-wave bearish structure. If this interpretation is correct, wave 4 is currently unfolding, while wave 3 has taken the form of a five-wave pattern. Once this structure is complete, the instrument may transition to a new upward wave sequence. However, according to the current wave count, wave 5 still lies ahead. Therefore, the euro may decline into the 1.13 level.
The EUR/USD pair fell by 25 basis points on Monday, once again showing extremely limited price volatility. The euro's decline over the past few days has been modest, but its gains in recent weeks have also been relatively weak. Consequently, overall market activity remains subdued. At this stage, traders can rely primarily on the wave count or other forms of technical analysis. If the low of the assumed wave b within wave 4 is broken, this will indicate that wave 4 has been completed. In that case, we will have confirmation that the pair has entered wave 5 of C. Otherwise, wave 4 may develop into a more extended five-wave structure.
There was virtually no significant news on Monday. Only a limited number of headlines were released during the day, most of which related to geopolitics—a factor to which market participants have recently become relatively indifferent. The problem is that a large amount
of information continues to emerge almost every day from the Middle East, much of it merely reflecting changes in the nature of the conflict between Iran and the United States. The market is no longer reacting to another missile strike or another damaged oil refinery. Instead, traders are waiting either for a breakthrough in negotiations or for a further escalation of the conflict.
However, given the euro's extremely weak pace of appreciation, I am still inclined to believe that the market remains willing to trade on geopolitical developments. Since the conflict between Iran and the United States has resumed, this represents a positive factor for the U.S. dollar. The renewed conflict could cause inflation to accelerate again in July, prompting the Federal Reserve to reconsider further monetary policy tightening, which would also support the dollar. Therefore, I do not expect a strong rally in the U.S. currency, but wave 5 of C may still unfold as expected. Based on all of the above, I believe the probability of another decline in EUR/USD this week is higher than the probability of renewed growth.
Based on my EUR/USD analysis, I conclude that the pair remains within the broader upward trend segment (shown in the lower chart), while in the shorter term it continues to trade within a downward trend segment. In my view, the market is approaching a favorable opportunity to begin building long positions, although the pair may still decline toward the 1.13 level as part of wave 5 of C. Wave analysis often produces unexpected developments, so I would already begin shifting my focus toward buying opportunities.
On the higher time frame, an upward trend segment is visible, followed by the development of a corrective wave structure. In the near term, wave C is expected to develop with a target near 1.1352, corresponding to the 38.2% Fibonacci retracement level. Once the A-B-C corrective structure is complete, a new long-term bullish trend may begin.
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