I advise beginner traders to trade based on the most common wave structures. Anyone who has studied wave analysis even superficially knows that impulsive structures consist of five waves, while corrective structures consist of three waves. Once an impulsive structure is completed, a corrective structure begins, and vice versa. Of course, standard structures do not always occur in the real market, but when they do, beginner traders can trade based on them.

At present, we are dealing with a structure that may take a five-wave form. We have seen a clear three-wave correction that can be identified as wave 2 or B. Therefore, the formation of a new impulsive structure began after it. The first wave of this structure turned out to be quite extended and contains no internal corrective waves. Therefore, a corrective wave may begin in the near future. Once it is completed, the decline in EUR/USD may resume, with targets around 1.1420, which corresponds to 161.8% of the Fibonacci level based on the size of the first wave.

I would also like to remind you that the fundamental backdrop often has a strong influence on the wave count. Wednesday was a clear example of this. The instrument was clearly preparing to form an upward corrective wave, but the outcome of the Fed meeting was not quite what everyone had expected. As a result, the decline continued, and the corrective wave was never formed.

Fundamental Backdrop

In recent weeks, the fundamental backdrop has focused solely on the Fed meeting and the future course of the U.S. regulator. Yesterday evening, it became clear that Kevin Warsh does not intend to adopt the position of Donald Trump, who has been demanding a reduction in interest rates for a year and a half and has also been trying to dismiss all Fed governors who are not prepared to vote for monetary policy easing. However, Donald Trump was unable to dismiss even Lisa Cook because the U.S. Supreme Court also cannot make decisions dictated by the White House. Moreover, after being appointed Fed Chair, Kevin Warsh effectively came out from under Donald Trump's control and is free to make whatever decisions he considers necessary. The stance of the FOMC committee is also worth mentioning separately. All 12 of its members voted in favor of tighter policy, so even if Warsh had wanted to cut rates, he would have remained in the minority. Therefore, even if Kevin Warsh wanted to, he cannot do anything against eleven hawkish governors. This means that the Fed is moving toward tighter monetary policy as part of its efforts to return inflation to the 2% target. Should we expect further appreciation of the U.S. currency based on this? Such a scenario is entirely possible, but the dollar cannot continue rising indefinitely on this factor alone. Next week, it will need new positive developments for market participants to maintain strong demand for the U.S. currency.

Overall Conclusions

Based on my EUR/USD analysis, I conclude that the pair remains within a downward trend segment that may take either a three-wave or a five-wave form. After a decline of 200 basis points, it is reasonable to expect the formation of a corrective wave. A successful break above 1.1470, which corresponds to the 127.2% Fibonacci level, indicates that the market is ready to take partial profits on short positions, which could lead to a rise in the instrument toward 1.1509, corresponding to the 100.0% Fibonacci level, and higher. I expect a correction in the coming days.

The Main Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often lead to changes in the analysis.
2. If there is no confidence in what is happening in the market, it is better not to enter the market.
3. There can never be 100% certainty about the direction of price movement. Do not forget to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.