The wave structure on the four-hour chart is at risk of transforming into a more complex formation. A new downward wave structure began forming on September 25, taking the shape of an impulse five-wave sequence. Two months ago, a corrective upward wave began developing, which should consist of at least three waves. The first wave structure was quite clear, leading me to expect the second wave to take on a similarly defined form. However, its size has grown so large that the entire wave structure may undergo a significant transformation.

From an economic data perspective, the fundamental backdrop continues to favor sellers over buyers. Recent U.S. economic reports have consistently demonstrated that the economy is not experiencing major issues and is not slowing to levels that would cause concern. However, the situation could change significantly in 2025 due to the policies of Donald Trump. The Federal Reserve may cut interest rates multiple times, while tariffs and retaliatory measures could harm economic growth. If not for recent events, I would have expected a 90% probability of further euro depreciation. However, this outcome is still possible.

The EUR/USD rate remained virtually unchanged on Tuesday, with the market reacting to both positive and negative reports.

The day began with the ZEW economic sentiment indices for Germany and the Eurozone, both of which exceeded market expectations, especially in Germany. While these reports are not particularly significant, the market had a valid reason to increase demand for the euro.

Later in the day, U.S. housing data was released, including building permits and new home sales. Both reports exceeded expectations, leading to a brief increase in dollar demand. At first glance, the market reacted logically, with EUR/USD adjusting to reflect the latest economic data.

However, the bigger issue for the U.S. dollar is that overall demand remains weak, regardless of economic indicators. While the dollar strengthened by 45 basis points during the day, it could lose twice as much by the end of the session, as the market continues to react negatively to Trump's foreign policy. Many forex traders and investors simply do not believe in the strength of the U.S. economy and anticipate a recession. As a result, they continue offloading U.S. dollars, stocks, and other U.S.-linked assets.

Key Takeaways

Based on my EUR/USD analysis, the pair remains in a downward trend, though it could soon transition to an uptrend. The second corrective wave may be nearing completion, but if prices continue rising, the entire wave structure could change. Since the current wave pattern is uncertain, I cannot recommend short-selling at this time, even though current price levels appear highly attractive for selling—but only if the wave structure remains unchanged.

Donald Trump's policies could further reduce demand for the U.S. dollar, making it impossible for a third wave to form.

On a higher wave scale, the structure has shifted to an impulse pattern. A new long-term downward sequence may be forming, but Trump's political decisions could upend the technical outlook at any moment.

Core Principles of My Analysis

1. Wave structures should be simple and clear. Complex formations are difficult to trade and are prone to frequent changes.
2. If market conditions are uncertain, it is better to stay out of the market.
3. There is never 100% certainty in market direction. Always use Stop-Loss orders for protection.
4. Wave analysis can be combined with other technical methods and trading strategies.