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The wave pattern on the 4-hour chart for EUR/USD has transformed into an upward structure and remains such. I believe there's no doubt that this transformation occurred exclusively due to the new U.S. trade policy. Until February 28, when the sharp decline in the U.S. dollar began, the wave structure appeared to be a convincing downward trend segment, with corrective wave 2 forming. However, Trump's weekly announcements about various tariffs took their toll. Demand for the U.S. dollar began to fall sharply, and now the entire trend segment originating on January 13 has taken on an impulsive upward form.
At present, wave 2 within wave 3 has presumably been completed. If this assumption is correct, then the upward movement of quotations will continue in the coming weeks and months. However, the U.S. dollar will remain under pressure unless Donald Trump completely reverses his adopted trade policy — something highly unlikely, as recent events have proven. At the moment, there are no grounds to expect a strong recovery in the U.S. dollar.
The EUR/USD exchange rate fell by 55 basis points on Tuesday. For the first time in a long while, the market reacted to a bearish factor for the euro and at least partially played it out. This morning, the preliminary inflation report for the Eurozone for May was released. It was expected that the Consumer Price Index (CPI) would slow to 2%, but in reality, price growth slowed to 1.9% year-over-year. I would remind you that the ECB has already conducted eight rounds of monetary policy easing, yet inflation continues to decline. In the near future, the ECB may face the problem of inflation being too low — a problem it battled for ten years before COVID. Thus, there's only one option — to continue cutting rates.
This is the conclusion market participants reached today, but it's important to highlight two points. First, demand for the euro fell only slightly and had no significant impact. The upward segment of the trend continues to build and has excellent chances to proceed further, since Trump's tariff policies remain the market's main concern. Second, up until today, the market had ignored both Eurozone inflation and ECB policy. It is quite possible that today's market movement simply coincided in nature with the inflation report and was not actually connected to the decline in the euro. Thus, the strengthening of the U.S. dollar could end very quickly.
Based on the EUR/USD analysis, I conclude that the pair continues to build an upward trend segment. In the near future, the wave pattern will depend entirely on the news backdrop related to Trump's decisions and U.S. foreign policy. Wave 3 of the upward trend has begun, and its targets could extend as high as the 1.2500 level. Therefore, I am considering buying with targets above 1.1572, which corresponds to 423.6% on the Fibonacci scale. It should be remembered that a de-escalation of the trade war could reverse the upward trend, but for now, there are no signs of either a reversal or a de-escalation.
On the higher wave scale, the wave structure has transformed into an upward trend. A long-term bullish wave sequence is likely, but the news flow, particularly from Donald Trump, can still turn everything upside down again.
The Main Principles of My Analysis:
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