EUR/USD. Analysis for May 15th. The ECB’s further policy could bring the euro down from the heavens to the earth
May 15, 2023 5:22 pm
The wave markup of the 4-hour chart for the euro/dollar pair continues to be not quite standard but has mostly stayed the same in recent weeks. During these same weeks, a retreat from the previously reached highs began, so the three-wave upward structure can be considered complete. The entire ascending segment of the trend may still take on a five-wave, corrective look, but at this time, I expect to build a new downward segment of the trend, which will turn out to be a three-wave. Lately, I have regularly been saying that I am waiting for the pair around the 5-figure mark, where the rise of the European currency once began.
The top point of the last trend segment was just a couple of dozen points higher than the highest point of the previous upward segment. Since December last year, the pair’s movement can be considered horizontal, which will persist. In the past 2–2.5 months, demand for the euro currency has been constantly growing, but I have repeatedly pointed out that the news background for the euro currency is not strong enough for it to grow in price so strongly. However, now it becomes clear: building a convincing ascending set of waves was necessary before building a descending one.
The ECB’s interest rate growth has very limited potential.
The euro/dollar pair rose by 25 basis points on Monday, showing weak activity. Today we saw a classic correctional rollback after a stronger move earlier. On Friday, the quotes of the European currency continued to decline, and on Monday – they rolled back a little upward. Everything is regular. Today’s news background was very weak. The report on industrial production in Germany turned out to be weak, but did not affect the market’s mood. During the last ascending wave, demand for the euro did not always grow regularly. Under the influence of the same wave analysis, the dollar can grow, sometimes understandably and obviously.
The problem for the euro is that aggressive monetary policy from the ECB is no longer to be expected. Some analysts even doubt that the interest rate will rise to 4% from the current 3.75%. But the more prevalent opinion in the market now is that there will be one or two rate hikes in 2023, which will still leave the ECB rate much lower than the Fed rate. If earlier the demand for the euro currency could grow due to expectations of a strong increase in the euro rate, now the market is aware: the policy will only become tighter for a while. Thus, everything now favors increasing the demand for the US dollar. I have expected a decrease in the pair over the past month, so I regularly advise looking at sales.
General conclusions.
Based on the analysis, the upward trend segment formation is complete. Therefore, I can now advise sales, and the pair has quite a large space for a decline. The targets around 1.0500-1.0600 can be considered quite realistic. With these targets, I advise selling the pair on MACD indicator reversals “down” as long as the pair is below the 1.1030 mark, corresponding to 0.0% Fibonacci.
On the larger wave scale, the wave markup of the ascending trend segment has taken on an extended form but is likely complete. We saw five waves, which are most likely an a-b-c-d-e structure. The formation of the downward trend segment may still need to be completed, and it can take any form in structure and duration.
The material has been provided by InstaForex Company – www.instaforex.com
The wave markup of the 4-hour chart for the euro/dollar pair continues to be not quite standard but has mostly stayed the same in recent weeks. During these same weeks, a retreat from the previously reached highs began, so the three-wave upward structure can be considered complete. The entire ascending segment of the trend may still take on a five-wave, corrective look, but at this time, I expect to build a new downward segment of the trend, which will turn out to be a three-wave. Lately, I have regularly been saying that I am waiting for the pair around the 5-figure mark, where the rise of the European currency once began.
The top point of the last trend segment was just a couple of dozen points higher than the highest point of the previous upward segment. Since December last year, the pair’s movement can be considered horizontal, which will persist. In the past 2–2.5 months, demand for the euro currency has been constantly growing, but I have repeatedly pointed out that the news background for the euro currency is not strong enough for it to grow in price so strongly. However, now it becomes clear: building a convincing ascending set of waves was necessary before building a descending one.
The ECB’s interest rate growth has very limited potential.
The euro/dollar pair rose by 25 basis points on Monday, showing weak activity. Today we saw a classic correctional rollback after a stronger move earlier. On Friday, the quotes of the European currency continued to decline, and on Monday – they rolled back a little upward. Everything is regular. Today’s news background was very weak. The report on industrial production in Germany turned out to be weak, but did not affect the market’s mood. During the last ascending wave, demand for the euro did not always grow regularly. Under the influence of the same wave analysis, the dollar can grow, sometimes understandably and obviously.
The problem for the euro is that aggressive monetary policy from the ECB is no longer to be expected. Some analysts even doubt that the interest rate will rise to 4% from the current 3.75%. But the more prevalent opinion in the market now is that there will be one or two rate hikes in 2023, which will still leave the ECB rate much lower than the Fed rate. If earlier the demand for the euro currency could grow due to expectations of a strong increase in the euro rate, now the market is aware: the policy will only become tighter for a while. Thus, everything now favors increasing the demand for the US dollar. I have expected a decrease in the pair over the past month, so I regularly advise looking at sales.
General conclusions.
Based on the analysis, the upward trend segment formation is complete. Therefore, I can now advise sales, and the pair has quite a large space for a decline. The targets around 1.0500-1.0600 can be considered quite realistic. With these targets, I advise selling the pair on MACD indicator reversals “down” as long as the pair is below the 1.1030 mark, corresponding to 0.0% Fibonacci.
On the larger wave scale, the wave markup of the ascending trend segment has taken on an extended form but is likely complete. We saw five waves, which are most likely an a-b-c-d-e structure. The formation of the downward trend segment may still need to be completed, and it can take any form in structure and duration.
The material has been provided by InstaForex Company – www.instaforex.com
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