EUR/USD. Analysis for October 30th. Good news for the euro
October 30, 2023 5:24 pm
The wave analysis of the 4-hour chart for the euro/dollar pair remains quite clear. Over the past year, we have observed only three wave structures that constantly alternate with each other. Over the past few months, I have consistently mentioned that I expected the pair to reach the 1.5 figure, where the construction of the last upward three-wave structure began. This target was reached after a two-month decline. After reaching this target, the construction of a corrective wave 2 or b began as expected, which has already taken a clear three-wave form but could also turn into a five-wave structure.
Regardless of whether wave 2 or b ultimately takes shape, the overall decline of the European currency is not over, as a third wave is still required in any case. Within the first wave, there are five internal waves, so it is complete. Inside the second wave, three waves can be seen, so it may also be complete. However, it could take the form of a-b-c-d-e.
Germany has provided positive earnings reports.
The euro/dollar pair’s exchange rate increased by 40 basis points on Monday. Practically all the upward movement was due to economic reports released today in Germany. The reports were important, but only for Germany, not for the entire Eurozone. Therefore, the reaction was relatively weak, though stronger than the reaction to the US GDP report last week. The German economy contracted by 0.1% quarter-on-quarter in the third quarter. One might wonder how such a report could lead to an increase in demand for the euro. However, the markets had expected an even lower value (-0.3%), so a contraction of only 0.1% was greeted with relief. Tomorrow, inflation data for the same month will be released for the entire European Union, and significant slowing is expected.
What does a decrease in inflation in the European Union mean now, and why did the euro rise when it used to decline on similar reports? It all has to do with the ECB’s monetary policy. In the past, a significant drop in inflation meant that the interest rate would rise more slowly and less vigorously. This is not the case now. The ECB has made it clear that the policy tightening cycle is complete, so inflation no longer has an impact on the Governing Council. The ECB will keep the rate at its peak level for several quarters, during which it intends to see inflation close to 2%. By itself, a decrease in inflation is good for the economy, so the demand for the euro increased today, and the corrective wave 2 or b has a real chance of taking on a five-wave form.
General conclusions.
Based on the analysis conducted, I conclude that the construction of a downward set of waves continues. The targets around the 1.0463 level have been ideally reached, and the unsuccessful attempt to break through this level indicated the transition to the construction of a corrective wave. A successful attempt to break the 1.0637 level, corresponding to 100.0% according to Fibonacci, indicated the market’s readiness to complete the construction of wave 2 or b. However, this wave can take on a more complex form, so if you decide to sell, do it with small volumes. The main decline may start a little later.
On a larger time scale, the wave analysis of the ascending segment of the trend has taken on an extended form but is likely complete. We have seen five upward waves that are likely a structure of a-b-c-d-e. The pair then built four three-wave structures: two down and two up. Now, it has likely entered the stage of constructing another more extended downward 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 remains quite clear. Over the past year, we have observed only three wave structures that constantly alternate with each other. Over the past few months, I have consistently mentioned that I expected the pair to reach the 1.5 figure, where the construction of the last upward three-wave structure began. This target was reached after a two-month decline. After reaching this target, the construction of a corrective wave 2 or b began as expected, which has already taken a clear three-wave form but could also turn into a five-wave structure.
Regardless of whether wave 2 or b ultimately takes shape, the overall decline of the European currency is not over, as a third wave is still required in any case. Within the first wave, there are five internal waves, so it is complete. Inside the second wave, three waves can be seen, so it may also be complete. However, it could take the form of a-b-c-d-e.
Germany has provided positive earnings reports.
The euro/dollar pair’s exchange rate increased by 40 basis points on Monday. Practically all the upward movement was due to economic reports released today in Germany. The reports were important, but only for Germany, not for the entire Eurozone. Therefore, the reaction was relatively weak, though stronger than the reaction to the US GDP report last week. The German economy contracted by 0.1% quarter-on-quarter in the third quarter. One might wonder how such a report could lead to an increase in demand for the euro. However, the markets had expected an even lower value (-0.3%), so a contraction of only 0.1% was greeted with relief. Tomorrow, inflation data for the same month will be released for the entire European Union, and significant slowing is expected.
What does a decrease in inflation in the European Union mean now, and why did the euro rise when it used to decline on similar reports? It all has to do with the ECB’s monetary policy. In the past, a significant drop in inflation meant that the interest rate would rise more slowly and less vigorously. This is not the case now. The ECB has made it clear that the policy tightening cycle is complete, so inflation no longer has an impact on the Governing Council. The ECB will keep the rate at its peak level for several quarters, during which it intends to see inflation close to 2%. By itself, a decrease in inflation is good for the economy, so the demand for the euro increased today, and the corrective wave 2 or b has a real chance of taking on a five-wave form.
General conclusions.
Based on the analysis conducted, I conclude that the construction of a downward set of waves continues. The targets around the 1.0463 level have been ideally reached, and the unsuccessful attempt to break through this level indicated the transition to the construction of a corrective wave. A successful attempt to break the 1.0637 level, corresponding to 100.0% according to Fibonacci, indicated the market’s readiness to complete the construction of wave 2 or b. However, this wave can take on a more complex form, so if you decide to sell, do it with small volumes. The main decline may start a little later.
On a larger time scale, the wave analysis of the ascending segment of the trend has taken on an extended form but is likely complete. We have seen five upward waves that are likely a structure of a-b-c-d-e. The pair then built four three-wave structures: two down and two up. Now, it has likely entered the stage of constructing another more extended downward three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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