The 4-hour wave structure for EUR/USD is becoming more complex. There is still no question of invalidating the upward trend segment (lower chart), which began in January last year. On the contrary, we have seen a complete A-B-C corrective structure, which may have been completed. However, recent events related to the Fed and its policy have once again affected the current wave structure. I would like to remind you that the fundamental backdrop and wave structure often conflict with each other, making adjustments necessary.

The wave structure may now become more complex again. Wave C has taken a three-wave form, while the next wave is identified as wave D. The entire trend segment that began on January 27 may now take a five-wave corrective form, A-B-C-D-E. If this assumption is correct, wave D is complete, and on August 21, EUR/USD entered the phase of forming wave E, whose low should be below the low of wave C at 1.1325. The only question now is whether the fundamental backdrop will support the dollar strongly enough for EUR/USD to fall below 1.1325.

The Fed Takes a Strongly Hawkish Stance

EUR/USD declined by 80 basis points during Wednesday's session, which, as of Thursday morning, does not appear to be an excessively strong market reaction to the events. Yesterday evening, the FOMC unanimously voted to tighten monetary policy by 25 basis points. This is the first key factor that supported a new rise in the dollar after demand for the currency had increased for five days. I would like to remind you that many economists had expected the US currency to decline because the rate hike had already been priced in before the Fed meeting results were announced. However, the meeting results themselves, Kevin Warsh's tone, the "dot plot," and the unanimous hawkish stance of the FOMC caused demand for the US currency to continue increasing even after the expected rate decision was announced.

I would not like to discuss the Fed meeting results in detail in this article, but I would note that the ECB also made a broadly hawkish decision a week earlier and likewise indicated its willingness to continue tightening monetary policy if inflation continues to accelerate. Based on this, the positions of the ECB and the Fed are currently similar in many respects. However, the market has already been pricing in the Fed's hawkish stance toward the end of the year for a week, allowing the US currency to gain approximately 180 basis points. Meanwhile, the ECB's hawkish stance has been ignored for the second time in the past three months. This is simply something that must be accepted because the market cannot be forced to trade in a direction that appears logical and justified. The market still has another meeting to get through today, and I now doubt that the Bank of England's hawkish stance will be noticed by market participants at all.

General Conclusions

Based on my analysis of EUR/USD, I conclude that the instrument remains within the global A-B-C-D-E corrective trend segment. If this assumption is correct, the decline will continue toward targets below the low of wave C at 1.1325. I considered this scenario to be an alternative one, and if not for the Fed meeting, it would have remained a secondary scenario. However, the Fed delivered a surprise, leaving the market with no other option but a new wave of US dollar buying. EUR/USD may continue to decline in the near term, with targets around 1.1414 and 1.1323, corresponding to the 76.4% and 100.0% Fibonacci levels.

On the higher time frame, an upward trend segment can be seen, followed by the formation of an A-B-C corrective structure. This structure may develop into a five-wave pattern, but at the current time, I consider it complete. If this is the case, the formation of a new impulsive upward trend segment has begun.

The Main Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often involve changes.
2. If there is no confidence 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 market move. Do not forget to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.