The wave pattern on the 4-hour chart for EUR/USD has undergone some adjustments. There is still no reason to consider the upward trend segment (lower chart), which began in January of last year, invalidated. However, the trend structure has now taken on a corrective appearance. From a longer-term perspective, a wave C formation can be expected, with its low likely positioned below the low of wave A.
At present, it is difficult to believe in such a significant decline of the euro. Nevertheless, the first quarter of 2026 demonstrated that geopolitical developments can dramatically alter market sentiment and reverse established trends.
On the lower time frame, I can identify a classic three-wave bullish corrective structure. Following the completion of this structure, a new downward trend segment began to develop, which logically should take the form of an impulse wave. If this assumption proves correct, we should expect the formation of a five-wave structure within wave C of the higher-degree count, with targets below the 1.1400 level.
Are there sufficient fundamental reasons to expect such a strong appreciation of the U.S. dollar? Not definitively. However, the market is gradually losing confidence in the prospect of an agreement between the United States and Iran, which is providing support for sellers.
EUR/USD declined by 30 basis points on Monday, although overall market activity remained subdued. Market participants continue to avoid taking excessive risks. As a result, traders are reacting to news developments but are doing so cautiously.
On Monday, the news backdrop once again favored sellers, at least at the time of writing. Earlier in the day, the Eurozone unemployment report for April was released. The unemployment rate remained unchanged at 6.3%, whereas market expectations had called for a decline to 6.2%. Consequently, the European Central Bank now has one less reason to adopt a more restrictive monetary policy stance in June.
It should be noted that, among the major central banks, the ECB is currently the only one with a realistic possibility of raising interest rates in June. However, the regulator's decision will depend approximately 60% on inflation developments and 40% on geopolitical conditions and other economic indicators.
If the ECB concludes that the conflict in the Middle East may be resolved in the near future and that the Eurozone economy may struggle to absorb higher borrowing costs, it may postpone any hawkish policy action. However, the May inflation report, scheduled for release tomorrow, could encourage the ECB to adopt a more hawkish stance.
Despite the recent slowdown in Germany's Consumer Price Index, inflation across the Eurozone could rise from 3.0% to a range of 3.2%–3.4% year-on-year. In my view, the probability of an ECB rate hike remains high, but the market is currently paying little attention to this factor.
At present, market participants appear focused on the development of a fifth wave within the current bearish structure. If that assessment is correct, a decline below the 1.1600 level could follow. Meanwhile, hopes for a near-term peaceful resolution of the conflict in the Middle East continue to fade.
General Conclusions
Based on my EUR/USD analysis, I conclude that the instrument remains within a broader upward trend segment (lower chart) and, in the shorter term, within a corrective structure. At present, wave 5 may be developing as part of wave C.
If the current wave count proves correct, the entire wave C structure could ultimately extend well below the 1.1400 level. However, such a significant decline would likely require additional support from geopolitical developments. Otherwise, the bearish wave sequence could evolve into a shortened a-b-c structure and complete its formation only slightly below the 1.1600 level.
On the higher time frame, an upward trend segment remains visible, followed by the formation of a corrective wave structure. In the near term, wave C is expected to develop toward the 1.1352 level, which corresponds to the 38.2% Fibonacci retracement level.
Once the A-B-C corrective structure is completed, a new long-term upward trend may begin to develop.
Key Principles of My Analysis
- Wave structures should remain simple and easy to interpret. Complex structures are difficult to trade and frequently undergo revisions.
- If there is no confidence in the current market situation, it is better to stay out of the market.
- Absolute certainty regarding future price direction is impossible. Always use protective Stop Loss orders.
- Wave analysis can be combined with other forms of analysis and trading strategies.
