Analysis of EUR/USD. May 25th. De Guindos, ECB: it is necessary to curtail support measures
May 25, 2023 3:25 pm
The wave labeling on the 4-hour chart for the euro/dollar pair remains non-standard and has not changed in recent weeks. The quotes continue to move away from previously reached highs, so the three-wave upward 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. For some time now, I have been anticipating the pair to be near the 1.5 figure, where the increase in the European currency began.
The high point of the last trend segment was only a few dozen points above the highest point of the previous upward segment. Since December of last year, the pair’s movement can be considered horizontal, and such a character of movement will be maintained. In the last 2-2.5 months, euro currency demand has steadily increased. Still, I have repeatedly pointed out that the news background for the Euro currency needs to be stronger for it to rise in price so confidently. However, it is now becoming clear: a convincing upward wave set should have been completed to begin forming a downward wave set.
The ECB plans to reduce assistance to Europeans.
The euro/dollar pair decreased by 20 basis points on Wednesday and an additional 30 points today. As we can see, the magnitude of the movements remains extremely low, but at the same time, the stability of the decline is striking. Today, the markets may have paid attention to the GDP report for the first quarter in the United States. The second estimate of this indicator was released, surpassing market expectations and reaching 1.3% quarter-on-quarter. This news could have supported the demand for U.S. currency, which has remained relatively high recently. The formation of the assumed first wave within the new downward trend segment continues. So far, I have yet to see any signs of its completion.
Also, on Thursday, the Vice President of the European Central Bank, Luis de Guindos, made a speech. He informed the markets that fiscal policy remains one of the key factors in inflation forecasting. According to him, the energy crisis has reduced its impact on prices, so the compensatory mechanism needs to be weakened. I want to remind you that after a sharp rise in gas prices last year, the governments of European countries decided to compensate a portion of the bills for citizens who faced high inflation and a fourfold increase in utility prices. Now that gas prices have returned to more familiar levels, it is possible to dispense with compensation to avoid reigniting inflation.
Since energy bills are lower than in winter, Europeans can allocate the “extra” money towards purchasing goods and services, stimulating inflation. The ECB’s policy is to reduce “extra” money. De Guindos also noted the ongoing tension in the banking sector, which may persist if the ECB rate remains “restrictive.” And the regulator still needs to complete the process of tightening monetary policy.
General conclusions.
Based on the analysis, I concluded that the formation of the upward trend segment is completed. Therefore, at the moment, it is advisable to recommend selling, and the pair has significant potential for a decline. Targets in the range of 1.0500-1.0600 can be considered quite realistic. With these targets in mind, I advise selling the pair.
On a higher wave scale, the wave labeling of the upward trend segment has taken an extended form but is likely completed. We have observed five upward waves, most likely the structure of a-b-c-d-e. The formation of the downward trend segment may still need to be completed, and it can take any form and length in terms of structure.
The material has been provided by InstaForex Company – www.instaforex.com
The wave labeling on the 4-hour chart for the euro/dollar pair remains non-standard and has not changed in recent weeks. The quotes continue to move away from previously reached highs, so the three-wave upward 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. For some time now, I have been anticipating the pair to be near the 1.5 figure, where the increase in the European currency began.
The high point of the last trend segment was only a few dozen points above the highest point of the previous upward segment. Since December of last year, the pair’s movement can be considered horizontal, and such a character of movement will be maintained. In the last 2-2.5 months, euro currency demand has steadily increased. Still, I have repeatedly pointed out that the news background for the Euro currency needs to be stronger for it to rise in price so confidently. However, it is now becoming clear: a convincing upward wave set should have been completed to begin forming a downward wave set.
The ECB plans to reduce assistance to Europeans.
The euro/dollar pair decreased by 20 basis points on Wednesday and an additional 30 points today. As we can see, the magnitude of the movements remains extremely low, but at the same time, the stability of the decline is striking. Today, the markets may have paid attention to the GDP report for the first quarter in the United States. The second estimate of this indicator was released, surpassing market expectations and reaching 1.3% quarter-on-quarter. This news could have supported the demand for U.S. currency, which has remained relatively high recently. The formation of the assumed first wave within the new downward trend segment continues. So far, I have yet to see any signs of its completion.
Also, on Thursday, the Vice President of the European Central Bank, Luis de Guindos, made a speech. He informed the markets that fiscal policy remains one of the key factors in inflation forecasting. According to him, the energy crisis has reduced its impact on prices, so the compensatory mechanism needs to be weakened. I want to remind you that after a sharp rise in gas prices last year, the governments of European countries decided to compensate a portion of the bills for citizens who faced high inflation and a fourfold increase in utility prices. Now that gas prices have returned to more familiar levels, it is possible to dispense with compensation to avoid reigniting inflation.
Since energy bills are lower than in winter, Europeans can allocate the “extra” money towards purchasing goods and services, stimulating inflation. The ECB’s policy is to reduce “extra” money. De Guindos also noted the ongoing tension in the banking sector, which may persist if the ECB rate remains “restrictive.” And the regulator still needs to complete the process of tightening monetary policy.
General conclusions.
Based on the analysis, I concluded that the formation of the upward trend segment is completed. Therefore, at the moment, it is advisable to recommend selling, and the pair has significant potential for a decline. Targets in the range of 1.0500-1.0600 can be considered quite realistic. With these targets in mind, I advise selling the pair.
On a higher wave scale, the wave labeling of the upward trend segment has taken an extended form but is likely completed. We have observed five upward waves, most likely the structure of a-b-c-d-e. The formation of the downward trend segment may still need to be completed, and it can take any form and length in terms of structure.
The material has been provided by InstaForex Company – www.instaforex.com
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