FX.co ★ EUR/USD Analysis – November 2: Preparations for the Elections Are Underway

The wave count on the 4-hour chart for EUR/USD has become more complex. On the higher time frame (lower chart), the downward trend segment has taken the form of a five-wave structure, A-B-C-D-E, which could be completed at any moment, as it appears structurally complete. All the waves in this segment are approximately equal in size, so it is considered corrective. If this assumption is correct, the completion of this structure will be followed by the development of an impulsive upward trend segment, with targets well above the 1.2000 level.

On the lower time frame (upper chart), an impulsive wave sequence continues to develop, which may belong to wave E on the higher time frame. If this is indeed the case, then regardless of how strongly the dollar rises, its advance is nearing an end. The presumed wave 5 within wave E has either been completed or is close to completion. In either case, the current wave structure suggests that the downward wave sequence is nearing completion on both charts. News developments and a sharp shift in market sentiment have driven the US currency significantly higher, but there are few new reasons to expect further dollar strength.

The European Currency Remains on the Sidelines of the Forex Market

The EUR/USD exchange rate declined by 20 basis points on Friday, and once again, the only conclusion is that there are no buyers in the market. Even if some are present, they show no willingness to trade. Last week, the euro had several good opportunities to begin forming an upward trend segment on both time frames, according to the current wave count. It would be premature to say that this scenario has failed, as it remains the base case. However, given the market sentiment seen last week, it will be very difficult for the euro to advance.

A new week is beginning. Monday can be considered a relatively quiet trading day, as the only major event today is the US ISM Manufacturing Index. However, information on the progress of voting in the United States will begin to emerge as early as tomorrow. It is worth recalling that Republicans are likely to lose control of at least one chamber of Congress in the midterm elections. In my view, market participants could interpret this development as either positive or negative for the US currency. Democrats will clearly seek to counterbalance Trump's one-sided policies, which could benefit the US economy. At the same time, the country's political course will be adjusted, which may not be particularly favorable for investors.

It is also worth noting the new protests that took place in several European countries over the weekend. Mass unrest is not, in my view, a reason in itself to continue selling the euro, but it represents another risk factor for the currency. The European Union's inflation report, due on Wednesday, is another potential risk. On Friday, it was reported that German inflation slowed by 0.5 percentage points year over year in October. If European inflation shows a similar decline, the euro could come under considerable pressure. Then, on Friday, the widely anticipated US Nonfarm Payrolls report and unemployment rate will be released.

General Conclusions

Based on the EUR/USD analysis, the pair remains within the broader corrective trend structure A-B-C-D-E. However, this structure appears complete and may therefore be nearing its end. In my view, this is a favorable time not only to consider buying the European currency but also to anticipate the development of a full-fledged upward trend segment. According to the higher time frame, the pair could be expected to rise to at least the 1.1700–1.1800 level. The failed attempt to break below 1.1126, which corresponds to the 50.0% Fibonacci retracement level (lower chart, higher time frame), also suggests that the market may be ready for a move higher.

On the higher time frame, the downward trend segment has taken the form of an A-B-C-D-E structure. The internal wave structure of wave E has developed into a five-wave impulsive pattern, but this pattern may already be complete. If this assumption is correct, a new upward trend segment will begin to develop.

Key Principles of My Analysis

1. Wave structures should be simple and easy to understand. Complex structures are difficult to trade and often undergo changes.
2. If there is no confidence in what is happening in the market, it is better to stay out.
3. There can never be absolute certainty about the direction of price movement. Do not forget to use protective Stop Loss orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.