I recommend that beginner traders 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. After 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 develop into a five-wave pattern. We have seen a clear three-wave correction that can be identified as wave 2 or B. Therefore, after it was completed, the formation of a new impulsive structure began. The first wave of this structure was quite extended and contains no internal corrective waves. Therefore, a corrective wave may begin soon. At present, the pair has declined to 1.1365, which corresponds to the 200.0% Fibonacci level. An unsuccessful attempt to break this level would indicate that the market is ready to form the long-awaited corrective wave.

I would also like to remind readers that the news backdrop often has a strong influence on wave labeling. At present, it is difficult to expect further strengthening of the U.S. currency based on the news backdrop. In recent weeks, the wave structure allowed for a rise in EUR/USD, but the news pushed the price lower. The news flow has subsided, but the U.S. currency continues to strengthen.

News Background

The news background this week was mixed. There was little economic news, the market ignored geopolitical developments, and demand for the U.S. currency increased throughout almost the entire week, regardless of the news. Therefore, it can be said that the flow of news in recent days has had virtually no effect on the euro or the dollar. I can only highlight several speeches by Fed officials, which confirmed their willingness to continue maintaining a hawkish stance. The FOMC's commitment to tightening monetary policy was probably the main reason for the U.S. currency's appreciation, although, in my view, the dollar did not warrant such a strong increase based solely on expectations of a future Fed rate hike. If the dollar had risen by 100 pips after the Fed meeting in anticipation of future policy tightening, this could have been explained. However, the U.S. currency has been rising sharply for a week and a half since the updated intentions of the U.S. central bank became known.

Most importantly, the market continues to increase its demand for the U.S. currency, and even 1.1365 may not be the final level of the decline. A successful break below this level would lead to a further decline in the instrument. We have not seen a corrective wave since September 9. The movement has been almost one-sided, and such movements are generally not driven by news. Such movements are referred to as "order flow," meaning the flow of orders. The further the price declines, the more pending orders are triggered, causing the price to continue declining.

General Conclusions

Based on my analysis of EUR/USD, I conclude that the instrument remains within a downward segment of the trend, which may develop into either a three-wave or five-wave pattern. After a decline of 280 points, it is reasonable to expect the formation of a corrective wave. An unsuccessful attempt to break below 1.1365, which corresponds to the 200.0% Fibonacci level, would indicate that the market is ready to take partial profits on short positions, which could lead to a rise in the instrument toward 1.1420 and 1.1470, corresponding to the 161.8% and 127.2% Fibonacci levels. A break below 1.1365 would indicate that the market is ready to decline toward 1.1274.

The Main Principles of My Analysis:

1. Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often involve changes.
2. If you are not confident about 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 a 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.