Analysis of EUR/USD on July 12th. Inflation in the US has dropped to 3%
July 12, 2023 5:22 pm
The wave pattern of the 4-hour chart for the euro/dollar pair has been transformed again, but it remains quite understandable. The entire upward trend section, which began on March 15, has taken on a more complex structure, and the formation of a declining section has been temporarily canceled. Over the past period, I have regularly stated that I expect the pair to be around the 5th figure, from where the formation of the upward three-waver once began. So far, I haven’t backed down from my words, but it needs time. The wave picture takes on a complex corrective form when impulsive waves are practically absent. One should look for the simplest formations, as complex structures are difficult to work with.
In light of recent events, an alternative wave pattern has been activated, which assumes that the entire trend section between March 15 and April 26 is one of a larger scale. The wave pattern may require the introduction of new corrections, but the current three-wave can now end at any moment, as the peak of the presumed wave c has passed the peak of the presumed wave a.
Inflation in the US shocked the market
The euro/dollar rate increased by 120 basis points on Wednesday. Such was the market’s reaction to the drop in US inflation to 3%. Recall that demand for the US currency has been falling since the beginning of the week, and many analysts wondered why this was happening and were frantically trying to explain this movement in any way possible. The general opinion was formed this way: the market began to react to the likely slowdown in inflation to 3.1%, anticipating the FOMC’s refusal of one of the two key rate hikes, which Jerome Powell had previously announced.
However, today, it became known that inflation did not drop to 3.1%, but to 3%, which further reduces the likelihood of two more tightenings of monetary policy. This is the only explanation I have for the fall of the US currency.
Now it remains to wait for the end of the current rising wave. Unfortunately, impulsive waves of a larger scale are now absent, and three-wave structures from within can take almost any form. Therefore, wave c can take both a shortened and an elongated form with equal success. This is the inconvenience of working with the pair at this time.
I expect the formation of a new descending wave of a larger scale since the problem of ending the tightening procedure is relevant for the dollar and the euro currency. Few people now believe that the ECB rate will grow to 5% or higher, even with higher inflation in the EU. But inflation in the EU is also decreasing, giving the regulator the opportunity to approach the issue of rates at future meetings less aggressively.
General Conclusions.
Based on the analysis, the formation of the upward trend section continues. However, the current rising three-wave structure could end at any moment. I still consider the targets in the area of 1.0500-1.0600 realistic, and I suggest selling the pair with these targets. However, now we must wait to complete the a-b-c structure, after which we can expect a decline into the indicated area. I consider buying to be quite risky. The euro currency takes every opportunity to rise, but the dollar is stronger than it may seem.
On a larger wave scale, the wave pattern of the upward trend section has taken an extended form but is likely completed. We have seen five upward waves, most likely the a-b-c-d-e structure. The pair then built three three-wave structures: two downward and one upward. It is likely in the stage of building another rising three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
The wave pattern of the 4-hour chart for the euro/dollar pair has been transformed again, but it remains quite understandable. The entire upward trend section, which began on March 15, has taken on a more complex structure, and the formation of a declining section has been temporarily canceled. Over the past period, I have regularly stated that I expect the pair to be around the 5th figure, from where the formation of the upward three-waver once began. So far, I haven’t backed down from my words, but it needs time. The wave picture takes on a complex corrective form when impulsive waves are practically absent. One should look for the simplest formations, as complex structures are difficult to work with.
In light of recent events, an alternative wave pattern has been activated, which assumes that the entire trend section between March 15 and April 26 is one of a larger scale. The wave pattern may require the introduction of new corrections, but the current three-wave can now end at any moment, as the peak of the presumed wave c has passed the peak of the presumed wave a.
Inflation in the US shocked the market
The euro/dollar rate increased by 120 basis points on Wednesday. Such was the market’s reaction to the drop in US inflation to 3%. Recall that demand for the US currency has been falling since the beginning of the week, and many analysts wondered why this was happening and were frantically trying to explain this movement in any way possible. The general opinion was formed this way: the market began to react to the likely slowdown in inflation to 3.1%, anticipating the FOMC’s refusal of one of the two key rate hikes, which Jerome Powell had previously announced.
However, today, it became known that inflation did not drop to 3.1%, but to 3%, which further reduces the likelihood of two more tightenings of monetary policy. This is the only explanation I have for the fall of the US currency.
Now it remains to wait for the end of the current rising wave. Unfortunately, impulsive waves of a larger scale are now absent, and three-wave structures from within can take almost any form. Therefore, wave c can take both a shortened and an elongated form with equal success. This is the inconvenience of working with the pair at this time.
I expect the formation of a new descending wave of a larger scale since the problem of ending the tightening procedure is relevant for the dollar and the euro currency. Few people now believe that the ECB rate will grow to 5% or higher, even with higher inflation in the EU. But inflation in the EU is also decreasing, giving the regulator the opportunity to approach the issue of rates at future meetings less aggressively.
General Conclusions.
Based on the analysis, the formation of the upward trend section continues. However, the current rising three-wave structure could end at any moment. I still consider the targets in the area of 1.0500-1.0600 realistic, and I suggest selling the pair with these targets. However, now we must wait to complete the a-b-c structure, after which we can expect a decline into the indicated area. I consider buying to be quite risky. The euro currency takes every opportunity to rise, but the dollar is stronger than it may seem.
On a larger wave scale, the wave pattern of the upward trend section has taken an extended form but is likely completed. We have seen five upward waves, most likely the a-b-c-d-e structure. The pair then built three three-wave structures: two downward and one upward. It is likely in the stage of building another rising three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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