Analysis of EUR/USD on August 10th. US inflation accelerates for the first time in 14 months
August 10, 2023 4:23 pm
The wave analysis of the 4-hour chart for the euro/dollar remains quite clear. The entire upward trend segment, which began its construction last year, has taken on a complex structure, and over the past six months, we have only seen three-wave structures that alternate with each other. Recently, I have consistently mentioned that I expect the pair around the 5th figure, where the construction of the last upward three-wave began. I stand by my words. The next upward three-wave structure is complete, so the market has begun building a downward trend segment.
Theoretically, the trend segment that began on May 31 can take on a five-wave shape with an a-b-c-d-e structure, but it is challenging to assert this confidently now. The news background needs to be stronger for the euro currency (and sometimes blatantly weak) to ensure a consistently high demand for it, and the economic data from the European Union remains mediocre. The unsuccessful attempt to breach the 1.1032 mark, corresponding to a 38.2% Fibonacci retracement, may indicate the market’s readiness to sell again.
The dollar moderately declined after the inflation report.
The euro/dollar rate increased by 60 basis points on Thursday. The decreased demand for the US currency began in the morning, so the market was anticipating a particular inflation figure. And this figure likely did not align with the forecast predicting acceleration to 3.3%. Let’s try to figure out what happened. If the demand for the dollar was falling, then the market expected a decrease in inflation instead of an increase or a weaker growth instead of an increase to 3.3%. As we can see, it was right. The Consumer Price Index in July was 3.2% y/y, while core inflation decreased to 4.7% y/y.
What do these numbers tell us? The mood of the Federal Reserve’s Board of Governors probably hasn’t changed. If inflation has risen, we need to raise the rate again, which is why the market should buy the dollar, not sell it. Core inflation has slowed down, but only by 0.1%, which is insufficient for the American regulator. Therefore, the conclusion remains: the rate must be raised again. If the above analysis is correct, then the dollar’s decline is short-term. In the image above, we see that in recent weeks, the pair has moved horizontally; attempts to breach the 38.2% level have been unsuccessful, and the first wave of the presumably new downward trend segment seems incomplete. The pair’s decline will resume shortly.
General conclusions:
Based on the analysis conducted, the construction of the upward wave set is complete. I still consider targets in the range of 1.0500-1.0600 to be realistic, and with these targets in mind, I recommend selling the pair. The a-b-c structure appears complete and convincing. Therefore, I advise selling the pair with targets around the 1.0836 mark and below. The construction of the downward trend segment will continue. If the next attempt to breach the 1.1032 mark is successful, this scenario should be temporarily paused.
On a larger wave scale, the wave pattern of the upward trend segment has taken an extended form but is likely complete. We saw five waves upward, which most likely represent the a-b-c-d-e structure. Subsequently, the pair constructed four three-wave segments: two downward and two upward. It is now likely transitioning to constructing another downward three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis of the 4-hour chart for the euro/dollar remains quite clear. The entire upward trend segment, which began its construction last year, has taken on a complex structure, and over the past six months, we have only seen three-wave structures that alternate with each other. Recently, I have consistently mentioned that I expect the pair around the 5th figure, where the construction of the last upward three-wave began. I stand by my words. The next upward three-wave structure is complete, so the market has begun building a downward trend segment.
Theoretically, the trend segment that began on May 31 can take on a five-wave shape with an a-b-c-d-e structure, but it is challenging to assert this confidently now. The news background needs to be stronger for the euro currency (and sometimes blatantly weak) to ensure a consistently high demand for it, and the economic data from the European Union remains mediocre. The unsuccessful attempt to breach the 1.1032 mark, corresponding to a 38.2% Fibonacci retracement, may indicate the market’s readiness to sell again.
The dollar moderately declined after the inflation report.
The euro/dollar rate increased by 60 basis points on Thursday. The decreased demand for the US currency began in the morning, so the market was anticipating a particular inflation figure. And this figure likely did not align with the forecast predicting acceleration to 3.3%. Let’s try to figure out what happened. If the demand for the dollar was falling, then the market expected a decrease in inflation instead of an increase or a weaker growth instead of an increase to 3.3%. As we can see, it was right. The Consumer Price Index in July was 3.2% y/y, while core inflation decreased to 4.7% y/y.
What do these numbers tell us? The mood of the Federal Reserve’s Board of Governors probably hasn’t changed. If inflation has risen, we need to raise the rate again, which is why the market should buy the dollar, not sell it. Core inflation has slowed down, but only by 0.1%, which is insufficient for the American regulator. Therefore, the conclusion remains: the rate must be raised again. If the above analysis is correct, then the dollar’s decline is short-term. In the image above, we see that in recent weeks, the pair has moved horizontally; attempts to breach the 38.2% level have been unsuccessful, and the first wave of the presumably new downward trend segment seems incomplete. The pair’s decline will resume shortly.
General conclusions:
Based on the analysis conducted, the construction of the upward wave set is complete. I still consider targets in the range of 1.0500-1.0600 to be realistic, and with these targets in mind, I recommend selling the pair. The a-b-c structure appears complete and convincing. Therefore, I advise selling the pair with targets around the 1.0836 mark and below. The construction of the downward trend segment will continue. If the next attempt to breach the 1.1032 mark is successful, this scenario should be temporarily paused.
On a larger wave scale, the wave pattern of the upward trend segment has taken an extended form but is likely complete. We saw five waves upward, which most likely represent the a-b-c-d-e structure. Subsequently, the pair constructed four three-wave segments: two downward and two upward. It is now likely transitioning to constructing another downward three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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