Analysis of EUR/USD. June 17th. The euro feels a surge of strength due to the increase in “hawkish” expectations
June 17, 2023 12:22 pm
The wave analysis of the 4-hour chart for the euro/dollar pair continues to be non-standard but understandable. The deviation of quotes from previously reached lows continues, presumably within wave b. The entire ascending trend segment, which started on March 15th, may adopt a more complex structure, but at the moment, I expect the formation of a downward trend segment, which will likely also consist of three waves. Recently, I have consistently mentioned that I anticipate the pair to be near the 5th figure, from where the formation of an ascending three-wave structure began. I am still sticking to my words.
The high point of the last trend segment was only a few tens of points higher than the peak of the previous upward segment. Since December of last year, the pair’s movement can be considered horizontal, and this character of movement will be maintained. The presumed wave b, which could have started its formation on May 31st, is convincing and can be concluded at any moment since three waves are visible within it. Moreover, it has already taken on a somewhat elongated form.
The ECB didn’t just raise the rate
The exchange rate of the euro/dollar pair remained virtually unchanged on Friday. However, the European currency rose by 115 basis points the day before. Yesterday’s increase in the European currency raises no questions since the ECB not only raised all three interest rates for the eighth time in a row but also gave a clear signal about an increase in July. Some regulator representatives even stated that they consider it necessary to extend the tightening process to September and October. Consequently, the market’s expectations for the final interest rate immediately increased. I remind you that they were at 4.25% before the June meeting. Many major banks and well-known analysts discussed this. This level has smoothly risen to 4.5% and may even reach 4.75%. The question is whether the market will believe the ECB or its representatives. After all, for the rate to continue rising in September and October, most committee members must support such a course, not just the central bank’s chairman, Joachim Nagel, who has the largest economy in the EU.
For now, it is reasonable to base calculations on the final rate value of 4.25%. This level is a kind of “golden mean” for the ECB. Each new increase will be seen as an addition and can provide strong support for the EU currency. But then, how to explain the rise of the euro yesterday? Has the market already priced in the possibility of stronger policy tightening? Since the current wave analysis suggests the formation of a new descending wave, the decline will resume regardless of the ECB’s plans. Remember that the Fed has also clearly indicated that the rate will increase more than it is now. And the pause in June is just a pause.
General conclusions.
Based on the analysis conducted, the formation of a new downward trend segment continues. The pair once again has significant room for decline. I still consider the targets in the range of 1.0500-1.0600 quite realistic, and I recommend selling the pair with these targets. New sales are advised after the obvious completion of wave b, starting from the level of 1.0678. I consider selling above the level of 1.0866, which corresponds to a 50.0% Fibonacci retracement of wave a, based on downward MACD reversals.
On the higher wave scale, the wave analysis of the ascending trend segment has assumed an extended form but is likely completed. We have seen five upward waves, most likely a structure of a-b-c-d-e. Then the pair formed two three-wave structures, downward and upward. It is likely in the process of constructing another descending 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 pair continues to be non-standard but understandable. The deviation of quotes from previously reached lows continues, presumably within wave b. The entire ascending trend segment, which started on March 15th, may adopt a more complex structure, but at the moment, I expect the formation of a downward trend segment, which will likely also consist of three waves. Recently, I have consistently mentioned that I anticipate the pair to be near the 5th figure, from where the formation of an ascending three-wave structure began. I am still sticking to my words.
The high point of the last trend segment was only a few tens of points higher than the peak of the previous upward segment. Since December of last year, the pair’s movement can be considered horizontal, and this character of movement will be maintained. The presumed wave b, which could have started its formation on May 31st, is convincing and can be concluded at any moment since three waves are visible within it. Moreover, it has already taken on a somewhat elongated form.
The ECB didn’t just raise the rate
The exchange rate of the euro/dollar pair remained virtually unchanged on Friday. However, the European currency rose by 115 basis points the day before. Yesterday’s increase in the European currency raises no questions since the ECB not only raised all three interest rates for the eighth time in a row but also gave a clear signal about an increase in July. Some regulator representatives even stated that they consider it necessary to extend the tightening process to September and October. Consequently, the market’s expectations for the final interest rate immediately increased. I remind you that they were at 4.25% before the June meeting. Many major banks and well-known analysts discussed this. This level has smoothly risen to 4.5% and may even reach 4.75%. The question is whether the market will believe the ECB or its representatives. After all, for the rate to continue rising in September and October, most committee members must support such a course, not just the central bank’s chairman, Joachim Nagel, who has the largest economy in the EU.
For now, it is reasonable to base calculations on the final rate value of 4.25%. This level is a kind of “golden mean” for the ECB. Each new increase will be seen as an addition and can provide strong support for the EU currency. But then, how to explain the rise of the euro yesterday? Has the market already priced in the possibility of stronger policy tightening? Since the current wave analysis suggests the formation of a new descending wave, the decline will resume regardless of the ECB’s plans. Remember that the Fed has also clearly indicated that the rate will increase more than it is now. And the pause in June is just a pause.
General conclusions.
Based on the analysis conducted, the formation of a new downward trend segment continues. The pair once again has significant room for decline. I still consider the targets in the range of 1.0500-1.0600 quite realistic, and I recommend selling the pair with these targets. New sales are advised after the obvious completion of wave b, starting from the level of 1.0678. I consider selling above the level of 1.0866, which corresponds to a 50.0% Fibonacci retracement of wave a, based on downward MACD reversals.
On the higher wave scale, the wave analysis of the ascending trend segment has assumed an extended form but is likely completed. We have seen five upward waves, most likely a structure of a-b-c-d-e. Then the pair formed two three-wave structures, downward and upward. It is likely in the process of constructing another descending three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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