EUR/USD
On February 7, the EUR/USD pair lost another 35 basis points. Thus, the previous wave layout (which assumes the construction of a three-wave structure up) was canceled. The new wave layout assumes the construction of a 3 or even 5-wave downward section of the trend. The first wave of this section took the form of a diagonal triangle, followed by wave 2 or B. If this assumption is correct, the decline in quotes will continue within wave 3 or C with targets located near the 100.0% Fibonacci level (equality between the first and third waves).
Fundamental component:
The news background on Friday was very strong and interesting for the European currency. At first, the markets experienced a complete disappointment due to the report on industrial production in Germany, which not only declined in the “usual mode”, but fell by 6.8% in December. It is easy to guess that such a report could only cause a decrease in demand for the European currency.
Further, economic data from America caused an even greater increase in demand for the US dollar, and the euro/dollar instrument was still very lucky that the losses amounted to only 35 points. Perhaps the most important report of the day (which is the Nonfarm Payrolls) was significantly better than market expectations and amounted to 225,000 new jobs outside the agricultural sector.
Markets expected to see no more than 160,000. The unemployment rate, however, with strong labor market indicators, rose slightly last week to 3.6%. However, the markets did not pay due attention to this report, considering that it is less significant than Nonfarm, and its value is not critical. Average hourly earnings increased by 0.2% m/m and 3.1% y/y in January.
It turned out that the monthly value is slightly worse than the forecasts, and the annual value is slightly better, in general – neutral. Thus, the economic statistics from America were again quite strong and increased the demand in the foreign exchange market for the US currency. No economic reports are scheduled for Monday in the United States and the European Union, so the instrument’s amplitude may decrease, and a correction wave of 3 or C.
General conclusions and recommendations:
The euro/dollar pair continues to build a downward set of waves. Thus, I recommend waiting for the correction wave to be built as part of 3 or C (since the first wave is nearing its completion) and then selling the instrument with targets located near 1.0908 and 1.0850, which is equal to 76.4% and 100.0% for Fibonacci.
GBP/USD
The GBP/USD pair lost about 45 basis points on February 7 and thus continues to build the wave 3 or C. If this is true, then the decline in the instrument’s quotes will continue with targets located near the level of 50.0% and 61.8% for Fibonacci. Wave 3 or C is likely to take a 5-wave form, which means that we are still waiting for the construction of waves 3, 4 and 5. An unsuccessful attempt to break through the 50.0% or 61.8% Fibonacci levels may lead to the completion of the downward trend section.
Fundamental component:
The news background for the GBP/USD instrument on Friday was very strong due to the same US reports. Demand for the US dollar has also increased in the pound/dollar instrument, so the decline does not cause any surprise. Moreover, the current wave markup implies the construction of a descending set of waves and a decrease to at least 1.2764.
In other words, the instrument still has to go down at least 150 base points. Today, it is unlikely that the decline in quotes will continue, since the news calendar is empty. But tomorrow, the UK will start receiving extremely important reports on GDP and industrial production.
I don’t want to put an end to the British economy in advance, but the likelihood of these reports being weak is very high. Thus, the decline in quotes of the pound may resume tomorrow with renewed vigor.
General conclusions and recommendations:
The pound/dollar instrument continues to build a downward wave 3 or C. Thus, I will continue selling the pound with targets located around the mark of 1.2764, which is equal to 50.0% for Fibonacci. A successful attempt to break this mark will lead to a further drop in quotes.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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