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Wave analysis of EUR/USD for October 28: ECB leaves PEPP program and key rate unchanged

Relevance up to 11:00 2021-10-29 UTC–4

Wave pattern

The wave counting of the 4-hour chart for the Euro/Dollar instrument looks quite holistic now. The a-b-c-d-e trend segment, which has been forming since the beginning of the year, is interpreted as wave A, and the subsequent increase of the instrument is interpreted as wave B. If this assumption is correct, then the construction of the proposed wave C has now begun and is continuing, which can take a very extended form. The exit of quotes from the reached highs means that the expected wave b can be completed. If this is indeed the case, then the construction of wave c has now begun, which can also turn out to be very long. Thus, the targets are located below the 15th figure to the 13th. At the same time, wave b may take on a more complex three-wave form, but I think this is unlikely. At the moment it looks quite complete.

Markets waited for the results of the ECB meeting and reacted cheerfully to them.

The news background for the EUR/USD instrument was quite strong on Thursday. The main event of the day was the ECB meeting and its results. There were concerns that there would be no special results, since now is not the best time to make adjustments to monetary policy. Nevertheless, some interesting messages have been received from the ECB, and the demand for the European currency has grown quite well.

Interest rates on loans and deposits remained unchanged. The volume of the asset purchase program (APP) will continue at a pace of 20 billion euros per month. However, the most important was the announcement that in the fourth quarter, the ECB will continue to reduce asset purchases under the PEPP program – an emergency program to counteract the pandemic.

It was to this message that the markets could react with purchases of the European currency. Note that at the last meeting, the ECB also indicated its desire to start curtailing the emergency program and has already moved from words to deeds. Thus, not the Fed, but the ECB, was the first to reduce the volume of bond purchases, that is, stimulating the economy, which is a bullish factor for the European currency. Otherwise, the ECB’s rhetoric has not changed.

The decision concludes that the rates will remain low or even lower until the inflation rate is 2% in the long term. It was also stated that the APP program will end shortly before the rate increase. Thus, the markets could understand that the PEPP and APP would be completed first, and only then there would be a rate increase. That is, it is not worth waiting for an increase in the next six months or a year.

General conclusions

Based on the analysis, I conclude that the construction of the downward wave C will continue, and its internal corrective wave has completed its construction. Therefore, now I advise you to sell the instrument for each signal from the MACD “down,” with targets located near the calculated marks of 1.1454 and 1.1314, which corresponds to 76.4% and 100.0% Fibonacci levels. Another successful attempt to break through the 50.0% Fibonacci level may indicate that the markets are ready to sell the instrument. It is even better to wait for this moment, since now the instrument is rising after the ECB meeting.

The wave counting of the higher scale looks quite convincing. The decline in quotes continues, and now the downward section of the trend, which originates on May 25, takes the form of a three-wave corrective structure A-B-C. Thus, the decline may continue for several more months until wave C is fully completed.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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