The wave pattern on the four-hour EUR/USD chart is becoming more complex. There is still no question of invalidating the bullish trend segment (bottom chart) that began in January of last year. On the contrary, we have seen a complete A-B-C corrective structure, which has most likely been completed. We never saw a convincing Wave 5 within Wave C. This wave took a truncated form, which also occurs from time to time. Let me remind you that classical wave structures are generally found only in textbooks. In real-world trading, traders and analysts need to be more flexible in their analysis. Therefore, for a month now, I have been saying in my reviews that we should prepare for the euro to rise. If the current wave count is correct, the instrument is at the very beginning of a new bullish trend segment.
On the lower timeframe, I can identify a classic five-wave bearish structure with a truncated Wave 5. I had expected the euro to fall to the 1.13 level, but the fundamental backdrop turned against the dollar, and the sellers simply lacked the strength to form a convincing Wave 5. Therefore, we can consider July 28 to have marked the beginning of a new bullish wave sequence.
Nonfarm Payrolls, Trump, and Kevin Warsh
The EUR/USD pair fell by 5 basis points on Monday, while the trading range was extremely narrow. There was virtually no significant news today, but there are still plenty of major issues on the agenda. This week, market participants will be focused on three key themes: geopolitics, the Federal Reserve, and the U.S. labor market. There will probably be plenty more to say about these topics this week, but I genuinely believe it is better to focus on important events rather than spread attention across dozens of secondary developments.
Donald Trump continues to tighten the pressure on Iran. If Iran were a large fish, Trump would probably have caught it by now. However, Iran is more like a school of small fish simply passing through the net. In other words, all of Trump's efforts to bring Iran under control have produced virtually no results. Yes, Trump has destroyed or damaged many of Iran's critical and nuclear infrastructure facilities. But let me remind you that Iran has lived under conditions of military confrontation for decades. Sanctions do not frighten it, and many infrastructure facilities have long been located underground or in the mountains, making them extremely difficult to reach.
There is not much to say about Nonfarm Payrolls. If the annual Nonfarm Payrolls report once again shows a negative figure, it would mean that the U.S. economy effectively created even fewer jobs than indicated by the recent monthly reports, which are also regularly revised downward. However, this situation may actually work in Trump's favor, as weakness in the labor market will prevent the Fed from even considering a shift toward tighter monetary policy.
Toward the end of the week, Kevin Warsh will speak, and market expectations are once again running high. In my view, Warsh will once again reiterate the key points regarding high inflation or policy changes. But the market is no longer looking for words—it wants action. Confidence in the FOMC president has declined sharply over the past month. Along with it, demand for the U.S. currency has also weakened.
Overall Conclusions
Based on my EUR/USD analysis, I conclude that the instrument remains within a bullish trend segment (bottom chart), while in the shorter term it has moved into a new bullish wave sequence. In my view, this is an excellent time to build long positions. Unless the bearish trend segment that began on January 28 develops into a more extended five-wave structure—which would require a strong fundamental backdrop in favor of the dollar—the EUR/USD pair is at the very beginning of a new, prolonged bullish trend segment, with targets extending as high as the 1.25 level.
On the higher timeframe, a bullish trend segment can be seen, followed by the development of a corrective wave sequence. The A-B-C structure is presumably complete. If that is the case, a new impulsive bullish trend segment has begun to develop.
Key Principles of My Analysis
- Wave structures should be simple and clear. Complex structures are difficult to trade and often involve changes in the wave count.
- If there is no confidence about what is happening in the market, it is better to stay out.
- There can never be 100% certainty about the direction of price movement. Do not forget to use protective Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
