In the previous two reviews, we discussed why a strong euro is unfavorable for both the European Union and the European Central Bank, which, unlike the Federal Reserve, is not entirely autonomous. The only question that remains is: how can that be addressed?

One of the options currently being floated by some economists is further interest rate reductions. Despite inflation in Europe having stabilized around 2%, the ECB may need to continue easing monetary policy solely to weaken the euro. It's true that in 2025, the ECB's "dovish" stance didn't produce a weaker euro — but that had more to do with Donald Trump's policies, which caused global markets to flee the U.S. dollar in a panic.

It's difficult to predict whether this strategy will be effective in 2026, as Trump may continue to make decisions that deter markets from investing in the U.S. dollar. But easing remains a possible route if the ECB is unwilling or unable to follow in the footsteps of the Swiss National Bank (SNB), which openly began currency interventions and risked retaliatory sanctions and tariffs from the Trump administration.

By the way, the SNB's interest rate currently sits at zero — yet we clearly see that it hasn't stopped the Swiss franc from appreciating. Still, every coin has two sides.

Further ECB rate cuts will fuel inflation across the eurozone, something the central bank has spent years trying to tame. This creates a policy dilemma: either live with an expensive euro and deal with lower exports and fresh economic challenges, or aim for a weaker euro at the cost of higher inflation.

From all of the above, it's clear that the U.S. is not the only one facing problems. Europe has its own economic troubles — although they are perhaps less apparent. We'll wait to see how far the euro can fall, and how that affects wave structures. Perhaps the ECB won't need to take radical action to stabilize the exchange rate. Ironically, ongoing political instability in France or Germany may actually benefit the ECB, since it reduces demand for the euro.

Wave Structure: EUR/USD

Based on the analysis of EUR/USD, I conclude that the pair continues forming a bullish wave structure. The current wave count is entirely dependent on the news backdrop, including decisions from Trump and the foreign and domestic policies emerging from the White House. The targets of the ongoing bullish wave may stretch as far as the 1.2500 area. At present, corrective wave 4 appears to be forming — and may already be complete. The upward wave structure remains intact. As such, I am only considering buy positions in the near future. My forecast for year-end is a move toward 1.2245, which corresponds to the 200.0% Fibonacci.

Wave Structure: GBP/USD

The wave structure of the GBP/USD pair has evolved. While we are still in the midst of a bullish impulse wave, the internal pattern is becoming unclear. If wave 4 takes the shape of a complex three-wave formation, the overall structure will normalize. However, this would make wave 4 much more complex and extended than wave 2. In my view, the market should now focus on the 1.3341 level, which corresponds to the 127.2% Fibonacci. Two failed attempts to break this level indicate renewed buying interest. The upside target remains above the 1.3800 zone.

Key Principles of My Analysis

1. Wave structures should be simple and clear. Complicated structures are difficult to trade and often unstable.
2. If you're uncertain about what's happening in the market, it's better not to enter.
3. There is no such thing as 100% certainty in market direction. Always use protective Stop Loss orders.
4. Wave analysis can and should be combined with other forms of analysis and trading strategies.