EUR/USD. Analysis for October 18th. Inflation in the EU fell in September almost to the level of the United States
October 18, 2023 5:22 pm
The wave analysis on the 4-hour chart for the euro/dollar pair remains quite clear. Over the past year, we have seen only three wave structures that constantly alternate with each other. For the last few months, I have regularly mentioned that I expect the pair to be near the 5th figure, from where the construction of the last upward three-wave structure began. This target was achieved after a two-month decline. The assumed first wave of the new downward trend may continue to take shape, although there are certain signs of its completion at this time.
None of the recent price increases resembled a full-fledged wave 2 or b. Therefore, all of these were internal corrective waves within wave 1 or a. If this is indeed the case, the decline in quotes may continue for some time during this wave. And this will not mark the end of the overall decline of the European currency since the construction of the third wave is required. Within the first wave, five internal waves are already visible, so it may be completed. An unsuccessful attempt to break through the level of 1.0463, which corresponds to 127.2% Fibonacci, indicates the market’s readiness to start building a corrective wave.
The euro did not react positively to the inflation drop.
The exchange rate of the euro/dollar pair decreased by 20 basis points on Wednesday, and the amplitude of the movements was very weak. Such weak movements did not affect the wave pattern at all. The pair is still at a crossroads. On the one hand, wave 1 or a looks completely complete. On the other hand, the European currency is in no hurry to rise, and the construction of corrective wave 2 or b is clearly delayed. Nevertheless, there is no need to rush; let the corrective wave be built as long as it is necessary. A successful attempt to break through the level of 1.0462, which corresponds to 127.2% Fibonacci, will serve as the cancellation of this scenario.
Today, the EU released the final inflation report for September, which confirmed the initial estimate of 4.3% y/y. At the same time, core inflation fell to 4.5% y/y. Therefore, consumer price indices in Europe have dropped almost to the level of those in the United States, which went up to 3.7% in September. In both cases, inflation now exceeds the target level by roughly twice. In both cases, central banks are no longer eager to continue tightening monetary policy. It’s hard to say which of the currencies will benefit from this. I think that movements will continue to depend solely on the wave pattern. Therefore, we expect a new increase in the pair and then a strong decline.
General conclusions.
Based on the analysis conducted, I conclude that the construction of a bearish set of waves is continuing. The targets near the level of 1.0463 have been perfectly achieved, and the unsuccessful attempt to break this level indicates the market’s readiness to build a corrective wave. In my recent reviews, I warned that it was worth considering closing short positions because there is a high probability of building an upward wave. The unsuccessful attempt to break through the level of 1.0637, which corresponds to 100.0% Fibonacci, suggests that the market is ready to resume the decline, but I believe that wave 2 or b will be three-wave.
On the higher wave scale, the upward trend wave took on an extended form but is likely to be completed. We saw five upward waves, which are most likely a structure a-b-c-d-e. The pair then built four three-wave structures: two downward and two upward. Currently, it has probably entered the stage of building another extended downward three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis on the 4-hour chart for the euro/dollar pair remains quite clear. Over the past year, we have seen only three wave structures that constantly alternate with each other. For the last few months, I have regularly mentioned that I expect the pair to be near the 5th figure, from where the construction of the last upward three-wave structure began. This target was achieved after a two-month decline. The assumed first wave of the new downward trend may continue to take shape, although there are certain signs of its completion at this time.
None of the recent price increases resembled a full-fledged wave 2 or b. Therefore, all of these were internal corrective waves within wave 1 or a. If this is indeed the case, the decline in quotes may continue for some time during this wave. And this will not mark the end of the overall decline of the European currency since the construction of the third wave is required. Within the first wave, five internal waves are already visible, so it may be completed. An unsuccessful attempt to break through the level of 1.0463, which corresponds to 127.2% Fibonacci, indicates the market’s readiness to start building a corrective wave.
The euro did not react positively to the inflation drop.
The exchange rate of the euro/dollar pair decreased by 20 basis points on Wednesday, and the amplitude of the movements was very weak. Such weak movements did not affect the wave pattern at all. The pair is still at a crossroads. On the one hand, wave 1 or a looks completely complete. On the other hand, the European currency is in no hurry to rise, and the construction of corrective wave 2 or b is clearly delayed. Nevertheless, there is no need to rush; let the corrective wave be built as long as it is necessary. A successful attempt to break through the level of 1.0462, which corresponds to 127.2% Fibonacci, will serve as the cancellation of this scenario.
Today, the EU released the final inflation report for September, which confirmed the initial estimate of 4.3% y/y. At the same time, core inflation fell to 4.5% y/y. Therefore, consumer price indices in Europe have dropped almost to the level of those in the United States, which went up to 3.7% in September. In both cases, inflation now exceeds the target level by roughly twice. In both cases, central banks are no longer eager to continue tightening monetary policy. It’s hard to say which of the currencies will benefit from this. I think that movements will continue to depend solely on the wave pattern. Therefore, we expect a new increase in the pair and then a strong decline.
General conclusions.
Based on the analysis conducted, I conclude that the construction of a bearish set of waves is continuing. The targets near the level of 1.0463 have been perfectly achieved, and the unsuccessful attempt to break this level indicates the market’s readiness to build a corrective wave. In my recent reviews, I warned that it was worth considering closing short positions because there is a high probability of building an upward wave. The unsuccessful attempt to break through the level of 1.0637, which corresponds to 100.0% Fibonacci, suggests that the market is ready to resume the decline, but I believe that wave 2 or b will be three-wave.
On the higher wave scale, the upward trend wave took on an extended form but is likely to be completed. We saw five upward waves, which are most likely a structure a-b-c-d-e. The pair then built four three-wave structures: two downward and two upward. Currently, it has probably entered the stage of building another extended downward three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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