Analysis of EUR/USD on May 23. The euro is losing to the dollar on all fronts
May 23, 2023 3:22 pm
The wave analysis of the 4-hour chart for the euro/dollar pair remains non-standard but has hardly changed in the past few weeks. During these weeks, the quotes started to deviate from the previously reached highs, so the three-wave ascending structure can be considered complete. The entire ascending trend segment could form a five-wave corrective pattern, but at the moment, I expect the formation of a descending trend segment, which is likely also to be a three-wave structure. Over the past period, I have consistently mentioned that I expect the instrument to be near the 5th figure, where the rise of the European currency began.
The highest point of the last trend segment was only a few tens of points higher than the highest point of the previous ascending segment. Since December of last year, the pair’s movement can be considered horizontal, and such a movement pattern will continue. Over the past 2-2.5 months, there has been a constant increase in demand for the euro, but I have repeatedly pointed out that the news background for the euro is not strong enough for it to rise in price so confidently. However, now it becomes clear that it was necessary to complete a convincing ascending wave set and then build a descending one.
Business activity in the Eurozone is disappointing.
The euro/dollar pair decreased by another 50 basis points on Tuesday. The euro is losing its value practically daily, corresponding to my expectations. I want to remind you that a month or two ago, I had questions about the reasons for the increased demand for the EU currency since, in my opinion, the news background was not strong enough. Now we are seeing the opposite trend. However, it cannot be said that the dollar is rising without reason. Yesterday, there was no significant news background except for a few speeches by FOMC members, and the pair remained unchanged. Today, data from the European Union and the United States started coming in, and demand for the American currency immediately began to rise.
The Business Activity Index in the EU services sector decreased by 0.3 points in April and reached 55.9 points. The same index for the manufacturing sector decreased by 1.2 points and now stands at 44.6. The Composite Index lost 0.8 points and is now 53.3. As we can see, all three indexes have declined, and in the manufacturing sector, it has been below the key mark of 50.0 for 11 months. Based on this, the decrease in demand for the euro is quite logical. In Germany, all three indices also decreased.
The current news background fully corresponds to the movement of the pair. The market has already priced in two more rate hikes by the ECB and has lost any motivation to continue buying euros. The ascending trend segment is completed, so the wave analysis does not suggest further growth. In the current situation, strengthening the US dollar remains the only possible scenario, and we are observing that. I continue to expect the pair to be near the 5th figure.
General conclusions.
Based on the conducted analysis, I concluded that the construction of the ascending trend segment is completed. Therefore, it is advisable to recommend selling, and the instrument has significant room for decline. Targets around 1.0500-1.0600 can be considered quite realistic. With these targets in mind, I advise selling the instrument.
On the higher wave scale, the wave analysis of the ascending trend segment has taken an extensive form but is likely completed. We have seen five upward waves, most likely the structure of a-b-c-d-e. The construction of the descending trend segment may still need to be completed, and it can take any form in terms of structure and duration.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis of the 4-hour chart for the euro/dollar pair remains non-standard but has hardly changed in the past few weeks. During these weeks, the quotes started to deviate from the previously reached highs, so the three-wave ascending structure can be considered complete. The entire ascending trend segment could form a five-wave corrective pattern, but at the moment, I expect the formation of a descending trend segment, which is likely also to be a three-wave structure. Over the past period, I have consistently mentioned that I expect the instrument to be near the 5th figure, where the rise of the European currency began.
The highest point of the last trend segment was only a few tens of points higher than the highest point of the previous ascending segment. Since December of last year, the pair’s movement can be considered horizontal, and such a movement pattern will continue. Over the past 2-2.5 months, there has been a constant increase in demand for the euro, but I have repeatedly pointed out that the news background for the euro is not strong enough for it to rise in price so confidently. However, now it becomes clear that it was necessary to complete a convincing ascending wave set and then build a descending one.
Business activity in the Eurozone is disappointing.
The euro/dollar pair decreased by another 50 basis points on Tuesday. The euro is losing its value practically daily, corresponding to my expectations. I want to remind you that a month or two ago, I had questions about the reasons for the increased demand for the EU currency since, in my opinion, the news background was not strong enough. Now we are seeing the opposite trend. However, it cannot be said that the dollar is rising without reason. Yesterday, there was no significant news background except for a few speeches by FOMC members, and the pair remained unchanged. Today, data from the European Union and the United States started coming in, and demand for the American currency immediately began to rise.
The Business Activity Index in the EU services sector decreased by 0.3 points in April and reached 55.9 points. The same index for the manufacturing sector decreased by 1.2 points and now stands at 44.6. The Composite Index lost 0.8 points and is now 53.3. As we can see, all three indexes have declined, and in the manufacturing sector, it has been below the key mark of 50.0 for 11 months. Based on this, the decrease in demand for the euro is quite logical. In Germany, all three indices also decreased.
The current news background fully corresponds to the movement of the pair. The market has already priced in two more rate hikes by the ECB and has lost any motivation to continue buying euros. The ascending trend segment is completed, so the wave analysis does not suggest further growth. In the current situation, strengthening the US dollar remains the only possible scenario, and we are observing that. I continue to expect the pair to be near the 5th figure.
General conclusions.
Based on the conducted analysis, I concluded that the construction of the ascending trend segment is completed. Therefore, it is advisable to recommend selling, and the instrument has significant room for decline. Targets around 1.0500-1.0600 can be considered quite realistic. With these targets in mind, I advise selling the instrument.
On the higher wave scale, the wave analysis of the ascending trend segment has taken an extensive form but is likely completed. We have seen five upward waves, most likely the structure of a-b-c-d-e. The construction of the descending trend segment may still need to be completed, and it can take any form in terms of structure and duration.
The material has been provided by InstaForex Company – www.instaforex.com
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